Powell Sounds Alarm: Tariffs and Immigration Curbs Create ‘Substantial Uncertainty’ for U.S. Economy

At the Jackson Hole conference, Fed Chair Powell outlined major challenges reshaping the U.S. economy. He highlighted that higher tariffs are already lifting prices in some goods categories, with core goods up 1.1% year-over-year after declining through 2024.

Immigration restrictions have caused labor force growth to plummet, with payroll growth averaging just 35,000 monthly over three months. GDP growth slowed to 1.2% annualized in the first half of 2025, half of 2024’s pace. Powell warned these aren’t temporary fluctuations but structural changes that monetary policy can’t easily fix. The Fed unveiled its revised five-year framework, returning to flexible inflation targeting and removing language about the lower bound constraint.

While Powell expects tariff effects might be a one-time price shift rather than an inflation spiral, he pledged the Fed won’t allow it to become an ongoing problem. He signaled the Fed will “proceed carefully” with data-dependent decisions as policy rates remain about 100 basis points closer to neutral than a year ago.