US Fed chair signals no rush for rate cuts despite Trump pressure - Economy

Al-Ahram Weekly

12 hours ago

US Federal Reserve Chair Jerome Powell told lawmakers Tuesday that the central bank can afford to wait for the impact of tariffs before deciding on further interest rate cuts, despite President Donald Trump's calls to slash levels.
The Fed has a duty to prevent a one-time spike in prices from becoming an "ongoing inflation problem," Powell said before the House Committee on Financial Services.
"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," he added.
Powell's reiteration that the Fed can wait to lower rates also pushes back on two officials' openness to cuts as early as in July. They are Christopher Waller and Michelle Bowman, both members of the Fed's board.
Asked about Waller's views on a pathway to rate cuts, Powell declined to comment.
But he said officials could be inclined to lower rates sooner if inflation were weaker than expected or if the labor market deteriorated.
The Fed has held the benchmark lending rate steady this year following its last reduction in December, bringing the level to a range between 4.25 percent and 4.50 percent.
After last week's announcement that the bank will keep rates unchanged for a fourth straight policy meeting, Powell told reporters that it would make smarter decisions if it waited to understand how Trump's tariffs impact the economy.
But hours before Powell's testimony Tuesday, Trump again urged the chair of the independent Fed to slash rates, saying these should be "at least two to three points lower" as inflation remains benign.
"I hope Congress really works this very dumb, hardheaded person, over," Trump wrote on his Truth Social platform.
Asked about Trump's criticism, Powell said: "We're focused on one thing and that is, we want to deliver a good economy for the benefit of the American people."
"We always do what we think is the right thing to do, and you know, we live with the consequences," he told lawmakers. "I don't know how else to do the job."
'Still strong'
Powell maintained Tuesday that it remains unclear how concerns over US trade policies could affect future spending and investment.
"Increases in tariffs this year are likely to push up prices and weigh on economic activity," he said.
Meanwhile, data suggest that at least some of the levies will be borne by consumers, he added.
But he stressed it would be "inappropriate for us to comment on the policy of tariffs."
For now, Powell said: "Despite elevated uncertainty, the economy is in a solid position."
"I wouldn't want to point to a particular meeting," he noted of the possibility of a July rate cut. "I don't think we need to be in any rush, because the economy is still strong."
He said "credibility on inflation is hard-won," adding that officials are "just being careful with potential inflation risks" as they navigate the path forward.
Since returning to the presidency, Trump has imposed a 10 percent tariff on almost all trading partners and steeper rates on imports of steel, aluminum and autos.
Economists warn Trump's levies could fuel inflation and bog down economic growth, although widespread effects have so far been muted.
This is partly because Trump has backed off or postponed his most punishing salvos. Businesses also stockpiled inventory in anticipation of the duties, avoiding immediate price hikes.
Powell expects to learn more about the tariffs' effects over the summer, as they filter through.
Although the Fed has penciled in two rate cuts this year, there is growing divergence among policymakers about whether it can lower rates at all in 2025.
Powell said a "significant majority" of the Fed's rate-setting committee still feels it will be appropriate to reduce rates later this year.
While inflation has eased significantly from highs in mid-2022, Powell noted this remains somewhat above the bank's longer-run two percent goal.
On conflict in the Middle East, Powell added that "it's too early to know what any economic implications might be."
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