Tariffs Keep Inflation Elevated, Says Powell
By James Moreau | 18 Mar, 2026

Lack of clarity in tariffs, duration of the Iran war, prevents Fed Chair Jerome Powell from prognostications on future rate cuts.

Federal Reserve Chair Jerome Powell on Wednesday described significant challenges in bringing inflation down, from persistent tariff-driven price hikes to Iran war-driven energy price hikes that the U.S. central bank may not be able to "look through" as a transitory shock.

Powell, speaking in a press conference after the end of the Fed's latest two-day policy meeting, said the central bank needs to see core inflation come down this year as the one-time impact of President Donald Trump's tariffs pass through the economy.

Inflation, as measured by the Fed's preferred gauge, has remained well above the central bank's 2% target, at about 3%, and "some big chunk of that, between a half and three-quarters is actually tariffs, so we're looking for progress on that," Powell said.

The Fed's expectation is that the tariffs would cause a one-time jump in prices, but not a year-after-year increase, and the effect should fade over time, said Powell, who added that there was a lack of clarity over future tariff rates. 

U.S. tariff rates came down somewhat after the U.S. Supreme Court struck down Trump's broad global duties under an emergency law, but the Trump administration plans to replace those duties with other tariffs, including on goods from 16 major trading partners under an unfair trade practices law.

And given that it took two years for the post-COVID-19 inflation flare-up to cool, Powell said, "I think we have to be humble about knowing how long it will take for tariffs to go all the way through the economy."

ENERGY PRICE SPIKE

Asked how high oil prices would have to rise from their current level above $100 per barrel before the Fed would consider hiking interest rates to head off further inflation, Powell declined to answer, saying only: "We're prepared to do what needs to be done."

But he said the Fed was watching how the higher prices of diesel, jet fuel and other petroleum-based inputs filter into headline inflation and "leak into core" inflation.

"We just don't know how big this will be and how long it lasts," Powell said of the Iran war-driven price hike. "It may or may not be something that really makes a big imprint on the U.S. economy. We're just going to have to wait and see."

And whether the Fed looks through the energy price impact on inflation, Powell said, depends partly on whether there is progress in reducing core inflation as tariff impacts fade, a goal that has so far remained elusive.

"The question of whether we look through the energy inflation doesn't really arise until we have kind of checked that box," he added.

(Reporting by David Lawder; Editing by Chris Reese and Paul Simao)