Powell’s passage: Navigating Trump’s tariff tempest between inflation’s Scylla and unemployment’s charybdis

The administration’s tariff blitz has become the economic equivalent of a force storm — a sudden shift in gravity that distorts trade flows, clouds the horizon for business planning. It sends tremors through the Federal Reserve’s already tricky balancing act. On paper, the Fed’s job is straightforward: set rates to keep prices stable and employment high. In practice, the landscape now looks more like a battlefield with shifting terrain — every tariff hike a fresh artillery round that ricochets through supply chains, labour markets, and inflation gauges.

With nearly all the new reciprocal tariff rates now live, the average effective tariff rate on U.S. imports has jumped to roughly 18% from 16% during the brief tariff truce — about eight times the level seen in early 2024. While that’s still shy of the 26% spike immediately after April’s “Liberation Day” announcements, it remains far above the rosiest projections of 12–15%. The actual take in tariff revenues suggests the full sting hasn’t even landed yet, with receipts pointing to an effective rate closer to 9% so far. The journey from policy announcement to economic impact is never instant — the shockwave is still rolling outward.

Nor is there much comfort in assuming tariff rates will stay where they are. Negotiations with China ahead of an August 12 deadline remain unresolved, and the President has just lobbed a 100% sectoral tariff at semiconductor imports. Pharmaceuticals could be next, with Brazil and India already feeling the sting of punitive 50% levies for political missteps. Even allies aren’t safe — Japan was blindsided this week to find its new 15% rate stacking on top of existing auto duties. For boardrooms and households alike, the uncertainty is toxic: it freezes capital spending, chills hiring plans, and turns pricing decisions into a gamble.

Labor market signals are beginning to crack. Continuing jobless claims hit 1.974 million in late July — the highest since early 2018 outside pandemic distortions — hinting at a decisive shift in hiring appetite.

The net downward revision of 258K jobs across May and June payrolls has grabbed headlines, but it’s the pattern that’s more telling: five of the past seven months have brought negative revisions, and the size of those adjustments is swelling. That’s often a prelude to more severe employment trouble ahead.

Inflation, meanwhile, isn’t retreating on cue. The Cleveland Fed’s Median CPI accelerated to a 4.1% annualized pace in June, up from 2.5% a year ago, and July’s core CPI is likely to break back above 3% year-on-year for the first time in five months. The ISM Services prices-paid index just notched its highest reading since October 2022 — a flashing yellow light that costs in the service sector are still rising briskly.

For Powell’s Fed, the challenge is a high-wire act without a net. The institution must anticipate shocks it can’t yet see, steering policy between the Scylla of inflation and the Charybdis of rising unemployment, all while political pressure mounts for rapid rate cuts and the early naming of a new Chair. In this environment, every move will require precision — a kind of monetary lightsaber work in the dark. And as in the Star Wars canon, the Force here is fickle; it can just as easily turn against you as save you.