"We haven't encountered anything like this." Fed head says he expects prices to rise in summer due to duties

The US Federal Reserve expects price increases to continue this summer, the regulator's head Jerome Powell warned at a press conference after the decision to keep the key rate unchanged. Powell said there are already signs that the effects of Donald Trump's increased duties are starting to take effect, and the Fed expects that impact to intensify. However, he suggested not to rely too much on the forecasts, as the regulator has not faced such a situation before;

Speaking to reporters after a meeting of the US Federal Reserve, Jerome Powell stated that the regulator is recording a rise in the price of goods due to increased duties on imports and expects prices to continue to rise in the summer. It will take some time before importers' costs are reflected in retail prices, he said, but certain effects are already showing up and there will be more in the coming months. Powell noted that the impact of the U.S. President's trade policy is evidenced by business surveys, among other things: "Everyone I've talked to expects a noticeable increase in prices because of the duties, because someone has to pay for them. The only question is who exactly it will be". 

However, the head of the Fed warned that it is still quite difficult to predict how much trade restrictions will affect the economy. "We haven't faced a situation like this before, and I think we should be modest in our assessment of our ability to make forecasts," Powell admitted. He also reiterated that the regulator is "in a good position to wait and get more information about the direction of the economy before making policy changes."

Following the results of the June 17-18 meeting, the Fed saved the rate in the range of 4.25-4.5%. At the same time, the regulator raised its inflation forecast for the end of 2025 from 2.7% to 3%, while on the contrary, it lowered its economic growth forecast from 1.7% to 1.4%. The higher inflation estimate is in line with the expectation that new duties will push prices up this year, notes Bloomberg. This forecast looks unexpected against the backdrop of current data - the PCE index is now at 2.1%, which means that the regulator is laying down a marked increase in inflationary pressures, the agency comments. At the same time, the Fed's further forecasts assume a slowdown in inflation to 2.4% in 2026 and to 2.1% in 2027 - this indicates that the anticipated price hike, according to the regulator, will be temporary, emphasizes Bloomberg.

During Powell's speech, the main U.S. stock indices lost all the day's growth. At the end of the trading session on June 18, Dow Jones closed in the minus by 0.1%, and S&P 500 almost unchanged. Only Nasdaq Composite grew - it added 0.1%. The dollar index, tracked by Bloomberg, after the Fed's decision fell to a daily low, but then bounced back and showed growth of 0.1%.

- Commenting on criticism from Donald Trump, who regularly rebukes the Fed for not being willing to cut rates, Powell had this to say: he and all his colleagues on the Federal Open Market Committee (FOMC) want to see a strong US economy. "That's basically all that matters to us," he noted. And when asked if he would remain on the Fed's Board of Governors after his term as chairman ends in May 2026, he said he hadn't given it much thought.

- The escalating conflict in the Middle East, according to the Fed chief, should not lead to prolonged pressure on energy prices. He believes that the US is much less dependent on Middle Eastern oil now than it was decades ago.

- While the Fed's median forecast still lays out two rate cuts in 2025, positions within the committee have begun to diverge, noted Bloomberg. Seven participants now don't expect a rate cut at all this year, compared with four in March. Another two allow only one. That suggests growing disagreement in assessing how to proceed, the agency emphasizes. Powell himself, when asked by reporters about the situation, said: "With such a high degree of uncertainty, no one is taking these rate trajectories with much confidence."