Federal Reserve Chair Jerome Powell reiterated his view that the central bank should keep interest rates steady for now, citing inflation risks from U.S. tariffs.
Powell, who made his remarks in prepared testimony Tuesday before the House Committee on Financial Services, has been under pressure from President Trump to cut rates, which would make it cheaper for consumers and businesses to borrow money. At its June 18 meeting, the Fed maintained its benchmark rate in a range of 4.25% to 4.5%, where it’s been parked since December.
In his semiannual testimony, Powell cited uncertainty over the impact of the Trump administration’s tariffs, noting that any resulting inflation “could be short lived” or “could instead be more persistent.” So far, data tracked by the Fed shows that tariffs have had little impact on overall consumer prices.
By contrast, the U.S. labor market is showing signs of a slowdown, prompting some Fed officials to signal it could be time to cut rates. But Powell reiterated his previous stance that it would be premature to push down borrowing costs for consumers and businesses.
“For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance,” Powell said in the testimony.
He added that tariffs are likely to weigh on economic activity and that the Federal Reserve’s goal is to ensure that any tariff-related price increases don’t become “an ongoing inflation problem.”
Powell is “unbending under pressure,” noted Sal Guatieri, senior economist at investment advisory firm BMO, in a research note. “Powell needs more data to assess whether tariffs will have a greater negative impact on growth/ labor markets or on inflation, and whether any lift to the latter will be temporary or longer-lasting should it influence expectations.”
Fed officials push for cut
Two Fed officials — Federal Reserve governors Michelle Bowman and Christopher Waller — have in recent days said the central bank should consider cutting its benchmark rate as soon as its next meeting, scheduled for July 29-30.
On Friday, Waller told CNBC he doesn’t believe the tariffs will cause inflation to rise meaningfully, opening the door to a rate cut next month. And on Monday, Bowman said Mr. Trump’s tariffs have so far not caused the jump in inflation that many economists feared, while also expressing the view that any increase in prices would likely be just a one-time rise.
“It is likely that the impact of tariffs on inflation may take longer, be more delayed and have a smaller effect than initially expected,” Bowman said in a speech Monday in Prague. “Should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting.”
Although Powell didn’t touch on those comments during his testimony, he noted his concerns that tariffs could lead to higher inflation, likely starting this summer, although he said the central bank will be open to policy changes if price hikes don’t materialize.
“The things that are sold at retail now might have been put into inventory before the tariffs, so we think we should see [higher prices] over the summer,” Powell said. But, he added later, if inflation remains contained, “We will get to a place where we cut rates.”
At the moment, most economists believe there’s a roughly 20% chance of rate cut in July, according to financial data firm FactSet. It’s more likely that the next reduction could occur at the Fed’s September 17 meeting, with economists giving it a probability of about 80%, FactSet data shows.
“Compared to the recent Waller/Bowman comment about how a July cut could be possible, this Powell language might sound a tiny bit hawkish, but in reality the Fed has been fairly consistent: They are waiting to see what happens with government policy, specifically tariffs, before acting,” Adam Crisafulli, an analyst with Vital Knowledge, said in a client note. “The most likely next date for a cut is 9/17 or 10/29.”