Fed's John Williams Warns on Inflation Due to Trump Tariff Policies

In an address to the Puerto Rico Chamber of Commerce on April 11, 2025, New York Federal Reserve President John Williams expressed concerns over the economic repercussions of the Trump administration's recent tariff policies. Williams projected that these tariffs could elevate inflation to between 3.5% and 4% by the end of 2025, up from 2.5% in February. He also warned that the combination of higher inflation, reduced immigration, and increased economic uncertainty might slow real GDP growth to below 1% and raise unemployment from 4.2% to between 4.5% and 5%.

Williams emphasized the importance of maintaining long-term inflation expectations anchored around the Federal Reserve’s 2% target. He clarified that the current economic environment does not equate to stagflation, referencing the more severe conditions of the 1970s. Williams stated that the current benchmark interest rate range of 4.25%-4.50% is appropriately positioned to address the evolving economic landscape and ensure the Fed remains capable of fulfilling its dual mandate.

The Trump administration's tariff policies have been a focal point of economic discussions. In early 2025, the administration implemented significant tariff increases, including a 145% tariff on Chinese imports and a 10% tariff on most other imports. These measures were met with retaliatory actions from trading partners, notably China, which raised tariffs on U.S. goods to 125%. The administration maintains that new trade deals with over 75 countries are underway.

The Organisation for Economic Co-operation and Development (OECD) projected that U.S. inflation would rise to 2.8% in 2025, up from 2.5% in the previous year, attributing this increase to the administration's tariff policies. The OECD also forecasted a slowdown in U.S. economic growth, predicting a decrease to 2.2% in 2025 and 1.6% in 2026, down from 2.8% in the previous year.

In April 2025, U.S. consumer sentiment experienced a significant drop, falling 11% to 50.8—the lowest level since the COVID-19 pandemic—driven by concerns over President Trump's aggressive trade policies. According to the University of Michigan's consumer sentiment index, the decrease was broad-based across all demographics and political affiliations, with overall sentiment down 34% from the previous year. Heightened fears over job losses and rising inflation contributed to the decline, as more respondents anticipated increasing unemployment, and long-term inflation expectations rose to 4.4%. These fears have already begun affecting financial markets, with U.S. Treasury yields climbing and the dollar dropping to a three-year low against the euro.

Despite the economic challenges posed by the tariff policies, the Federal Reserve has maintained the benchmark interest rate range at 4.25%-4.50%. Williams emphasized that this positioning is appropriate to address the evolving economic landscape and ensure the Fed remains capable of fulfilling its dual mandate of promoting maximum employment and stable prices.

Williams clarified that the current economic environment does not equate to stagflation, referencing the more severe conditions of the 1970s. During that period, the U.S. experienced high inflation combined with stagnant economic growth and high unemployment, a situation that policymakers are keen to avoid repeating.

The economic implications of the Trump administration's tariff policies continue to unfold, with stakeholders closely monitoring inflation trends, GDP growth, and labor market dynamics. The Federal Reserve remains vigilant, aiming to navigate these challenges while maintaining its commitment to economic stability.