Federal Reserve Chairman Jerome Powell continued a two-day congressional hearing on Wednesday when he appeared before the Senate Banking Committee, after being questioned by a House panel the day before that focused on the Fed’s concerns that the Trump administration’s tariff plans could boost inflation.
The Senate session began with Powell expected to deliver the same message as before the House Financial Services Committee, that while recent inflation has been more moderate than expected, the central bank expects the import tax hike to trigger a pick-up in inflation starting this summer. He is also expected to reiterate that the Fed will not feel comfortable cutting interest rates until there is evidence that prices have really started to rise and that the process is showing signs of continuing.
“We should see the impact this summer, in the June and July numbers. If not, we are fully open to the possibility that the knock-on effect to consumers is smaller than expected. But if it does, it will be an important factor in monetary policy,” Powell said. “I think if inflationary pressures remain contained, we will get to the point where we can cut rates earlier than expected. I don’t want to set a specific meeting. I don’t think we need to rush,” he added, given the still-strong labor market and high uncertainty over the impact of the tariffs that have yet to be finalized.
Tariffs have already been raised on some goods, and the July 9 deadline for higher tariffs on various countries is looming with no certainty whether the Trump administration will back down to the 10% base tariff as analysts have expected, or instead implement more aggressive rates.
The Fed has kept its benchmark interest rate in a range of 4.25% to 4.5% since December, despite continued pressure from President Donald Trump for immediate and deep rate cuts.
The Fed’s economic projections released last week showed policymakers on average expect the overnight rate to be cut by half a percentage point by year-end. But the projections also show a sharp divergence among officials, with 7 out of 19 seeing no need for a rate cut this year, while 10 out of 19 expect two or more rate cuts.
Investors now expect the Fed to cut rates at its September and December meetings, but keep rates unchanged at its next meeting, July 29-30.
