US Federal Reserve Chair Jerome Powell will tell Congress 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 do so.
The Fed has a duty to prevent a one-time spike in prices from becoming an “ongoing inflation problem,” Powell said in prepared remarks to 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 Fed officials recently expressed openness to cuts as early as in July.
The Fed has held the benchmark lending rate steady this year after its last reduction in December, bringing the level to a range between 4.25 percent and 4.50 percent.
After unveiling the Fed’s latest announcement to keep rates unchanged for a fourth straight policy meeting last week, Powell told reporters that the bank 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 is expected to maintain 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 in the prepared remarks.
For now, Powell added: “Despite elevated uncertainty, the economy is in a solid position.”
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 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, given that these take 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 this year.
While inflation has eased significantly from highs in mid-2022, Powell said in remarks Tuesday that it remains “somewhat elevated” relative to the bank’s longer-run two percent goal.
