The Federal Reserve is well placed to wait and see how tariffs affect US prices before cutting interest rates, its chair, Jerome Powell, insisted, defying renewed demands from Donald Trump.
The US president has disregarded the central bank’s longstanding independence to repeatedly call for rate cuts to spur economic growth and launch a series of personal attacks on Powell.
In an overnight social media post, Trump branded the Fed chair as “very dumb” and claimed the central bank’s refusal to lower rates since December – in part, the result of uncertainty sparked by his own administration’s erratic economic strategy – was damaging the US.
“We will be paying for his incompetence for many years to come,” the president wrote on his Truth Social platform.
On Capitol Hill on Tuesday, Powell reiterated that Trump’s tariffs were “likely” to increase prices – potentially challenging the Fed’s years-long effort to bring down US inflation. He noted, however, that the administration’s policies frequently shift.
“Policy changes continue to evolve, and their effects on the economy remain uncertain,” Powell told the US House of Representatives financial services committee. “The effects of tariffs will depend, among other things, on their ultimate level. Expectations of that level, and thus of the related economic effects, reached a peak in April and have since declined.
“Even so, increases in tariffs this year are likely to push up prices and weigh on economic activity.”
Powell, whom Trump appointed as Fed chair during his first stint in the White House, stressed he was open to the prospect of the inflationary impact of tariffs being less severe than expected. “We aren’t commenting on tariffs,” he stressed.
At its latest two-day policy meeting last week, the Fed kept rates on hold, but its officials signaled thy might make two cuts this year. They lifted their projections for inflation and downgraded their estimates for growth.
The “obligation” of the central bank’s policymakers is to “keep longer-term inflation expectations well anchored and to prevent a one-time increase in the price level from becoming an ongoing inflation problem”, Powell told Congress on Tuesday.
He added: “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.”
