ARLINGTON, Va. (AP) — The Trump administration‘s expansive new tariffs will likely lead to higher inflation and slower growth, and the Federal Reserve will focus on keeping price increases temporary, Fed Chair Jerome Powell said Friday.

Powell said that the tariffs, and their likely impacts on the economy and inflation, are “significantly larger than expected.” He also said that the import taxes are “highly likely” to lead to “at least a temporary rise in inflation,” but added that “it is also possible that the effects could be more persistent.”

“Our obligation is to … make certain that a one-time increase in the price level does not become an ongoing inflation problem,” Powell said in remarks delivered in Arlington, Virginia.

Powell’s focus on inflation suggests that the Fed will likely keep its benchmark interest rate unchanged at about 4.3% in the coming months. Wall Street investors, meanwhile, now expect five interest rate cuts this year, a number that has increased since President Donald Trump announced the tariffs Wednesday.

Powell also emphasized that the full impact of the tariffs on the economy aren’t yet clear, and the Fed will likely stay on the sidelines until it has more clarity about the economy.

“There’s a lot of waiting and seeing going on, including by us,” Powell said during a question and answer session. “And that just seems like the right thing to do in this period of uncertainty.”

Trump, separately, urged Powell to cut rates, citing lower inflation and energy prices on his social media platform, Truth Social.

“This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates,” Trump wrote. “CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”

Economists expect that the tariffs will weaken the economy, possibly threaten hiring, and push up prices. In that scenario, the Fed could cut rates to bolster the economy, or it could keep rates unchanged — or even hike them — to combat inflation. Powell’s comments suggest the Fed will mostly focus on inflation.

Powell’s remarks come two days after Trump unveiled sweeping tariffs that have upended the global economy, prompted retaliatory moves by China, and sent stock prices in the U.S. and overseas plunging.

Weaker growth and higher prices are a tricky combination for the Fed. Typically the central bank would reduce its key interest rate to lower borrowing costs and spur the economy in the event of slower growth, while it would raise rates — or keep them elevated — to slow spending and combat inflation.

“The Fed is in a tough spot with inflation set to accelerate and the economy poised to slow,” said Kathy Bostjancic, chief economist at Nationwide.

Powell said the economy and hiring remain solid, for now, but he noted that consumers and businesses have become more pessimistic about the future.

He also said inflation has fallen sharply from its peak in 2022, but said that recently progress toward the central bank’s 2% target “has slowed.”

Some positive news arrived Friday when the government reported that hiring accelerated in March, with 228,000 jobs added, though the unemployment rate ticked up to 4.2%, from 4.1%.

Yet those figures measure hiring in mid-March, before the scope of the duties became clear. The tariffs have also raised uncertainty about how the economy will fare in the coming months, which could limit businesses’ willingness to invest and hire.

NEW YORK (AP) — Stock markets worldwide are careening even lower Friday after China matched President Donald Trump‘s big raise in tariffs in an escalating trade war. Not even a better-than-expected report on the U.S. job market, which is usually the economic highlight of each month, was enough to stop the slide.

The S&P 500 was down 3.5% in morning trading, coming off its worst day since COVID wrecked the global economy in 2020. The Dow Jones Industrial Average was down 1,226 points, or 3%, as of 10:20 a.m. Eastern time, and the Nasdaq composite was 3.4% lower.

So far there are few, if any winners, in financial markets from the trade war. European stocks saw some of the day’s biggest losses, with indexes sinking more than 4%. The price of crude oil tumbled to its lowest level since 2021. Other basic building blocks for economic growth, such as copper, also saw prices slide on worries the trade war will weaken the global economy.

China’s response to U.S. tariffs caused an immediate acceleration of losses in markets worldwide. The Commerce Ministry in Beijing said it would respond to the 34% tariffs imposed by the U.S. on imports from China by imposing a 34% tariff on imports of all U.S. products beginning April 10. The United States and China are the world’s two largest economies.

Markets briefly recovered some of their losses after the release of Friday morning’s U.S. jobs report, which said employers accelerated their hiring by more last month than economists expected. It’s the latest signal that the U.S. job market has remained relatively solid through the start of 2025, and it’s been a linchpin keeping the U.S. economy out of a recession.

But that jobs data was backward looking, and the fear hitting financial markets is about what’s to come.

“The world has changed, and the economic conditions have changed,” said Rick Rieder, chief investment officer of global fixed income at BlackRock.

The central question is: Will the trade war cause a global recession? If it does, stock prices will likely need to come down even more than they have already. The S&P 500 is down roughly 15% from its record set in February.

Much will depend on how long Trump‘s tariffs stick and what kind of retaliations other countries deliver. Some of Wall Street is holding onto hope that Trump will lower the tariffs after prying out some “wins” from other countries following negotiations. Otherwise, many say a recession looks likely.

For his part, Trump has said Americans may feel “some pain” because of tariffs, but he has also said the long-term goals, including getting more manufacturing jobs back to the United States, are worth it. On Thursday, he likened the situation to a medical operation, where the U.S. economy is the patient.

“For investors looking at their portfolios, it could have felt like an operation performed without anesthesia,” said Brian Jacobsen, chief economist at Annex Wealth Management.

But Jacobsen also said the next surprise for investors could be how quickly tariffs get negotiated down. “The speed of recovery will depend on how, and how quickly, officials negotiate,” he said.

Vietnam said its deputy prime minister would visit the U.S. for talks on trade, while the head of the European Commission has vowed to fight back. Others have said they were hoping to negotiate with the Trump administration for relief.

Trump criticized China’s retaliation on Friday, saying on his Truth Social platform that “CHINA PLAYED IT WRONG, THEY PANICKED – THE ONE THING THEY CANNOT AFFORD TO DO!”

On Wall Street, stocks of companies that do lots of business in China fell to some of the sharpest losses.

DuPont dropped 14.5% after China said its regulators are launching an anti-trust investigation into DuPont China group, a subsidiary of the chemical giant. It’s one of several measures targeting American companies and in retaliation for the U.S. tariffs.

GE Healthcare got 12% of its revenue last year from the China region, and it fell 13.3%. United Airlines, which is in an alliance with Air China and got a third of its passenger revenue last year from flights across the Pacific, lost 11.7%.

In the bond market, Treasury yields continued their sharp drop as worries rise about the strength of the U.S. economy, along with expectations for the Federal Reserve to cut interest rates to cushion it.

The yield on the 10-year Treasury tumbled to 3.92% from 4.06% late Thursday and from roughly 4.80% early this year. That’s a major move for the bond market.

The Fed could cut its main interest rate to relax the pressure on the economy, as it was doing late last year before pausing in 2025. But it may have less freedom to move than it would like.

Lower rates can goose the economy by making it easier for U.S. companies and households to borrow and spend. But they can also push upward on inflation. And worries are already worsening about that because of tariffs, with U.S. households in particular bracing for sharp increases to their bills.

In stock markets abroad, Germany’s DAX lost 4.6%, France’s CAC 40 dropped 4.1% and Japan’s Nikkei 225 fell 2.8%.

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AP Writers Jiang Junzhe, Huizhong Wu and Matt Ott contributed.