Fed Says Trade War Downturn Could Pose Challenges

WASHINGTON (AP) — Federal Reserve Chairman Jerome Powell says that the central bank has tools it could use to cushion the adverse effects a trade war might have on the economy. But he tells Congress the effort could be challenging if higher tariffs push inflation up too sharply.

Powell says if the retaliatory tariffs imposed by other countries caused the U.S. economy to slow, the Fed could employ its normal tools, such as lowering interest rates.

But he says that could become complicated if higher U.S. tariffs on foreign products caused inflation to accelerate. That’s because the Fed’s normal response to higher inflation is to raise interest rates, not lower them.

“If we do have higher inflation, that could be very challenging for policy,” Powell says.