Federal Reserve Chair Jerome Powell had many opportunities on Tuesday to make it clear to lawmakers that the central bank would soon cut interest rates. But he didn’t seize any of them.
On the contrary, Powell restated his view that policymakers need not rush to adjust policy, contrary to President Donald Trump’s demands and the recent statements of Fed governors Christopher Waller and Michelle Bowman, who indicated their willingness to lower interest rates as early as July.
“If inflationary pressures are indeed brought under control, then we will cut interest rates as soon as possible,” Powell said at a House Financial Services Committee hearing when answering questions about the possibility of a rate cut next month. “But I don’t want to specify which meeting. I think we don’t need to rush because the economy remains strong.”
Before Powell’s speech to the congressional committee, the Federal Reserve had just decided last week to keep the interest rate unchanged at the range of 4.25% to 4.5%. He insisted that policymakers should be cautious about cutting interest rates and wait for more clarity on the impact of Trump’s economic policies, especially the tariff policy.
“The impact of tariffs will depend on many factors, including their ultimate level,” Powell said. “For now, it’s best for us to first understand where the economy may be headed before considering adjustments to our policy stance.”
Powell and several other policymakers pointed out that the Trump administration’s increase in tariffs, which was used as a reason to keep interest rates unchanged for the time being, has exacerbated economic uncertainty. Many forecasters expect that tariffs will exert upward pressure on inflation and restrain economic growth, although there is considerable uncertainty about these predictions.
Powell emphasized that there are still multiple possible outcomes. He indicated that if inflation is lower than expected or the labor market deteriorates, the Federal Reserve might cut interest rates earlier. Similarly, he added that higher-than-expected inflation could also prompt the Federal Reserve to keep interest rates unchanged.
Powell said, “There are many feasible paths here.”
He acknowledged that recent economic data support a rate cut. But he stressed that the data are backward-looking and many economists expect inflation to rise “significantly” this year due to the impact of tariffs. “We can’t turn a blind eye to this.”
During Powell’s testimony, U.S. Treasury yields and the dollar declined as traders saw a slightly higher chance of the Fed cutting rates at least twice by the end of the year. They pointed to Powell’s comment that the impact of tariffs on inflation may be lower than what forecasters currently expect. Powell’s testimony came as the U.S. released a weaker-than-expected consumer confidence index for June, which also supported these bets.
Fed officials hinted last week that, based on the median of their forecasts, they expect to cut interest rates twice by the end of the year. Economists surveyed by Bloomberg expect the first rate cut to come in September.
Evercore ISI analysts said in a note to clients: “His testimony continues to point to September as the next decision point, and in our interpretation, this is consistent with a reasonable core scenario of a rate cut in September, but it is far from guaranteed.”
Several other Federal Reserve officials said on Tuesday that they supported a wait-and-see approach to considering a rate cut.
Williams of the Federal Reserve said maintaining stable interest rates is “entirely appropriate”; Kashkari said the Fed needs to be clearer about the impact of tariffs on prices; Harker of the Federal Reserve said policy might be on hold for a while; Barr of the Federal Reserve said he expects tariffs to push up inflation.
Trump said on social media early Tuesday morning: “Federal Reserve Chairman Jerome Powell will go to Congress today to explain why he refused to lower interest rates and other reasons. I hope Congress can truly punish this stupid and stubborn person. We will pay the price for his incompetence for many years to come.”
Trump frequently changes the specific details of his tariff policies, while the US government says it is working on trade agreements that could affect the nature and level of tariffs.
In his opening remarks, Powell said, “Expectations for this level and the related economic impact peaked in April and have since declined.” This is largely consistent with his remarks last week. “Even so, the tariff hikes this year could still push up prices and put pressure on economic activity.”
Powell said that the impact of tariffs on inflation might be short-lived, but it could also be more persistent.
