Federal Reserve Chair Jerome Powell told Congress Tuesday that while inflation has cooled from its 2022 peak, it remains “somewhat elevated,” and the central bank is not ready to adjust interest rates, yet.
However, he said the Fed is "well positioned to wait" for more clarity before making moves, and a "significant majority" of committee members expect to cut rates later this year.
Tariffs Could Reshape Fed’s Inflation Outlook
Much of the near-term policy uncertainty revolves around tariffs. Powell said the inflationary effects of recent tariff increases—especially those announced earlier this year—could be "short-lived" or potentially "more persistent," depending on their scale and speed of price transmission.
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"Increases in tariffs this year are likely to push up prices and weigh on economic activity," Powell said, acknowledging risks to both consumer prices and business investment.
He indicated the central bank is monitoring how tariffs ripple through supply chains and consumer pricing.
What Could Trigger Rate Cuts This Year?
Powell rebutted lawmakers’ concerns about a recession, arguing that the U.S. economy isn't contracting despite a negative first-quarter GDP print.
The Fed Chair emphasized that key indicators do not reflect the sustained weakness typical of a recession.
When asked how the Fed would act if price stability and full employment goals conflicted, Powell said the committee would prioritize whichever mandate was further from its target.
"We look at the two goals and see which one is farther from its goal," he said, noting that the Fed would then assess how quickly each could return to target.
But Powell was clear: "We are not there yet."
Powell left the door open for rate cuts—particularly if inflation comes in weaker than expected or if labor market data deteriorates further.
"We could see inflation come in not as strong as expected," he said.
"If that’s the case, we would suggest cutting sooner. Also, a weakening labor market would suggest cutting sooner."
Despite holding rates steady in June, Powell confirmed that "a significant majority of the committee feels it will be appropriate to reduce rates later this year."
Powell sidestepped questions about President Donald Trump's pressure on the Federal Reserve to cut interest rates.
On Tuesday, Trump accused Powell of triggering long-term economic damage, writing that interest rates should be "at least two to three points lower" and claiming it would "save the USA $800 billion per year."
Trump's Iran Truce Triggers Wall Street Rally
Markets rallied following Trump's announcement that a ceasefire between Israel and Iran would hold, calming tensions that had rattled energy markets earlier this month.
The S&P 500 rose 0.9% to 6,080, while the Nasdaq 100 gained 1.2%. The Russell 2000, which tracks small caps, climbed 1.3%.
Top gainers in the S&P 500 included Carnival Corp. (NYSE:CCL), up 9.5%, and Coinbase Global Inc. (NASDAQ:COIN), up 9.3%.
Oil prices fell 4.7% after tumbling 7.2% on Monday.
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