U.S. Federal Reserve Chairman Jerome Powell said Tuesday that the central bank needs more time to assess whether rising tariffs will push up inflation before considering any rate cuts as urged by President Donald Trump.
“This year’s tariff hikes are likely to raise prices and depress economic activity,” Powell said in a written statement prepared for a hearing before the House of Representatives Financial Services Committee.
“The impact on inflation is likely to be temporary, reflecting a one-time price change. However, it is not impossible that these inflationary effects could be more prolonged. For now, we are well-positioned to wait and see how the economy develops before making any adjustments to monetary policy.”
Powell’s statement was in line with the Fed’s latest official policy statement last week, when officials unanimously left the benchmark interest rate in a range of 4.25% to 4.5%, and gave no indication that a rate cut is imminent.
New economic projections published at the time showed Fed officials’ median expectation that two quarter-point rate cuts would be implemented before the end of the year, with investors expecting the first cut to be announced at the September meeting.
In recent days, two Trump-appointed Fed governors have said that interest rates could be cut as early as the July meeting given that inflation has not risen significantly due to tariffs, while two regional reserve bank presidents remain concerned that inflation will peak in the second half of the year.
Trump, who appointed Powell as chairman during his first term but is expected to replace him when his term ends next spring, has repeatedly called for aggressive interest rate cuts.
In his remarks, Powell also said that the U.S. economy remains “robust,” with low unemployment and inflation well below its peak during the pandemic.
However, the Trump administration’s trade policy remains unclear, with a July 9 deadline looming for higher tariffs on various countries.
Powell stressed that the outcome of these policy changes will be an important factor for the Fed to understand.
