Former Federal Reserve Chair and U.S. Treasury Secretary Janet Yellen expressed concern over the tariffs imposed by President Donald Trump, describing them as “misguided” with “unclear” objectives. She highlighted the potential challenges these tariffs pose for the Federal Reserve, such as fueling inflation and causing economic slowdown.
During an appearance on Bloomberg Television, Yellen remarked on the prevailing “tremendous uncertainty.” Earlier in April, President Trump had introduced a reciprocal tariff regime, leading to market volatility. Although a temporary pause allowed for deal-making, which helped the stock market recover, the long-term effects remain uncertain. With the 90-day grace period potentially leading back to economic instability, analysts from LPL Financial noted in a research report that similar conditions might re-emerge by early July.
Despite the imposition of a broad 10% tariff on other countries and more significant duties on China, trade between the U.S. and China was nearly halted until exemptions were announced for specific technology products. However, the administration indicated that these exemptions might not be permanent, warning of impending tariffs on technology.
Calmness has somewhat returned to the market, with some recession warnings being withdrawn, though not universally. Both Yellen and other economists like Ray Dalio and Mark Zandi caution that a recession is conceivable. Rising inflation expectations and declining consumer sentiment could dampen consumer spending and business investment, leading to reduced economic activity. As a result, the central bank remains observant, focusing on potential tariff-driven inflation rather than promptly lowering interest rates. With its dual mandate of stable prices and full employment, the Fed may need to consider rate cuts if economic weakening and rising unemployment are observed.
Yellen suggested that while tariffs could be a “one-time shock” to prices, as her successor Jerome Powell indicated, they might trigger wage hike demands or future tariffs, which complicate inflation dynamics. The tariffs on China specifically could impose heavy burdens on both households and businesses, exacerbating the trade war’s adverse effects on the U.S. economy.
In a related op-ed, Mohamed El-Erian, president of Queens’ College at the University of Cambridge, described Powell’s tenure at the Fed as potentially one of the “unluckiest” due to these economic challenges.
Originally published on Fortune.com.