Federal Reserve Chair Jerome Powell spoke before the Senate Banking Committee on Feb. 11, making it clear that while free trade still makes economic sense, it's not the Fed's job to weigh in on trade policy.
When questioned about free trade, Powell said, “The standard case for free trade... logically still makes sense. It's not the Fed's job to make or comment on tariff policy... Ours is to try to react to it in a thoughtful, sensible way.”
His remarks came as the Trump administration rolled out new tariffs, including a 25% duty on steel and aluminum imports. These moves add another layer of uncertainty for the Fed, which is still working to bring inflation back to its 2% target.
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Powell acknowledged the challenge, saying, “We do not need to be in a hurry to adjust our policy stance. We know that reducing policy restraint too fast or too much could hinder progress on inflation."
The impact of these tariffs is already being felt in multiple industries. Companies like Ford (NYSE:F) and Coca-Cola (NYSE:KO), which rely on imported metals, are seeing costs rise. The energy sector, particularly renewable energy projects, also faces higher prices for necessary materials.
Analysts expect these rising import costs to trickle down, potentially fueling inflation and cutting into corporate profits.
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Looking back, tariffs haven't always had the intended effect. The Smoot-Hawley Tariff Act of 1930, for example, led to a sharp drop in trade. U.S. imports fell 66% from $4.4 billion in 1929 to $1.5 billion in 1933, while exports shrank by 61% from $5.4 billion to $2.1 billion, as claimed by the U.S. Department of State’s Office of the Historian.
In a more recent example, President George W. Bush's 2002 steel tariffs caused about 200,000 job losses in steel-consuming industries, even though U.S. steel production saw a modest increase, as per a 2003 study commissioned by the Consuming Industries Trade Action Coalition.
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The latest round of tariffs is expected to have similar ripple effects. "LiveNOW From Fox" showed prices for items like Mexican beer, Canadian whiskey, and Chinese-manufactured smartphones could see price hikes.
Despite these economic headwinds, the Fed isn't rushing to change course. Powell pointed to a strong labor market—averaging 189,000 new jobs per month—as a reason to hold steady for now. “Policy is well positioned to deal with the risks and uncertainties that we face,” he said.
Powell's testimony kicked off two days of hearings on Capitol Hill, which concluded on Feb. 12 after further discussions before the House Financial Services Committee.
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This article Fed Chair Powell Stands Firm: 'Standard Case for Free Trade… Logically Still Makes Sense' Amid Trump's Import Taxes originally appeared on Benzinga.com
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