US Fed chair signals no rush for rate cuts despite Trump's pressure

New Straits Times

9 hours ago

WASHINGTON: 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 comes after two officials recently expressed openness to cuts as early as in July.
Asked about other policymakers' 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 per cent and 4.50 per cent.
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 Fed chair to slash rates, saying these should be "at least two to three points lower" given that inflation remains benign.
"I hope Congress really works this very dumb, hardheaded person, over," Trump wrote on his Truth Social platform.
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, although adding that 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."
Since returning to the presidency, Trump has imposed a 10 per cent tariff on almost all trading partners and steeper rates on imports of steel, aluminum and autos.
Economists warn the 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 stocked up on inventory in anticipation of the duties, avoiding immediate consumer price hikes.
But Powell expects to learn more about the tariffs' effects over the summer, giving them time to filter through.
Although the Fed has penciled in two rate cuts this year, there is growing divergence among policymakers about whether the central bank 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 said Tuesday that it remains "somewhat elevated" relative to the bank's longer-run two percent goal.
On conflict in the Middle East, Powell said "it's too early to know what any economic implications might be," adding that officials are monitoring the situation. - AFP