With sweeping new U.S. tariffs now in play globally and markets shaken as a result, Federal Reserve Chair Jerome Powell Friday will add his voice to a growing debate at the central bank over whether the Trump administration's new policies are more likely to stoke higher inflation or undercut growth and employment so much the Fed will have to respond.

The risks to what the Fed had considered a sweet spot just a few weeks ago of continued growth and falling inflation continued to mount overnight when China announced retaliatory tariffs of 34% on all U.S. goods, restrictions on the export of minerals critical to the tech industry, and other measures including limits on imports of U.S.-raised chickens - a nod to President Donald Trump's support in rural, agricultural parts of the country.

Global equity markets continued to drop. Administration officials have so far downplayed the decline in equity markets, the worst since the onset of the COVID-19 pandemic, as necessary for U.S. economic gains at some point in the future.

Retaliation by other countries, in this case one of the U.S.'s largest trading partners and the wellspring of many trade grievances among U.S. politicians of both political parties, is one of the channels Fed officials have said could cause Trump's import taxes to lead to more persistent inflation.

Along with expectations of slowing growth, that could put the Fed in a particular bind in managing monetary policy that is supposed to maintain stable inflation at 2% a year and maximum employment.

The labor market continues to hold up. Data released on Friday ahead of Powell's speech showed firms added 228,000 jobs in March, faster than recent gains and despite a slight drop in federal government employment. Gains in prior months were revised lower, however, and the unemployment rate rose to 4.2% as a result of an increase in the labor force.

Powell's comments will add to recent remarks by his colleagues that have reflected growing concern that the economy could be pulled in conflicting directions in coming months, with steep tariffs driving prices higher even as fading confidence and price shocks drive growth and consumption lower.

While short of classic "stagflation," Fed Governor Adriana Kugler this week said "we're already seeing some upside risks to inflation and some real increases in inflation...We may be seeing down the road a little bit of a slowdown as well," in the economy overall.

Fed Vice Chair Philip Jefferson noted on Thursday that the "substantial amount of uncertainty around trade" could hit household and business spending, while Fed Governor Lisa Cook said that inflation expectations had ticked up "even before yesterday's larger-than-expected announcements on trade policy."

PUSH AND PULL

The push and pull expected between slower growth and rising prices could well keep the Fed on hold until it is clear which trend takes hold more forcefully.

Powell on Friday is likely to keep a "wait and see" tone despite the unexpected sweep of Trump's announcements, since there remains a chance coming negotiations could blunt what is eventually implemented, said former Powell adviser Antulio Bomfim, head of global macro for Northern Trust.

He said the initial price shock from tariffs could push Fed rate cuts until later this year or into next, but that eventually "it could even be cutting with gusto if the economy is really approaching recession-type levels."

Investors in contracts tied to the central bank's policy rate appear to be leaning that way, and boosted bets on more rate cuts - presumably on views Trump's actions would translate into slower growth and a related drop in inflation.

Markets now expect four quarter-point rate cuts from the Fed this year versus three before Trump's announcement of tariffs that could tax imports an average of as much as 27% by some estimates, versus about 2.5% at the end of the Biden administration.

JP Morgan economist Michael Feroli said the headline impact of Trump's actions, before accounting for retaliatory moves abroad and other second-round effects, could be to add as much as 1.5 percentage points to U.S. inflation this year, depress spending because of that blow to real wages, and "take the economy perilously close to slipping into recession."

Economists at the consulting firm of former Fed Governor Larry Meyer, however, said they thought the price impact could shift public expectations and keep Fed rates on hold.

"We expect a significant inflationary impulse that...will likely fuel further and broader rises in inflation expectations and actual inflation itself," they wrote. "We no longer presume...policy-rate easing in 2025."

Powell is due to speak at 11:25 a.m EDT (1525 GMT).