Washington (AFP) – 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.
His comments came after two Fed officials — Christopher Waller and Michelle Bowman — recently suggested policymakers could cut rates as early as July. Powell declined to comment when asked about Waller’s views on a pathway to rate reductions. 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 since its last reduction in December, bringing the level to a range between 4.25 percent and 4.50 percent.
Last week, Powell told reporters that it would make smarter decisions if it waited to understand how Trump’s tariffs impact the economy. The Fed chief said Tuesday that it should see the duties’ impact on consumer prices in June and July numbers, adding that a smaller effect than anticipated is also important for policymaking. Hours before Powell’s testimony, 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.
On Trump’s criticism, Powell said: “We always do what we think is the right thing to do, and you know, we live with the consequences.” New York Fed President John Williams separately supported maintaining the central bank’s monetary policy stance. “Much of the soft data we’ve seen in recent months captures the heightened uncertainty about the path of the economy,” he said in remarks prepared for a Tuesday event. “But it’s too early to say what the future trajectory of the hard data will be.”
Powell maintained Tuesday that it is 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. 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.”
Given that “credibility on inflation is hard-won,” he said officials are proceeding cautiously. While inflation has eased, it remains above the bank’s longer-run two percent goal. 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 levies could fuel inflation and hit 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.
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. He pushed back on narratives of the dollar’s decline as “premature” too, expressing belief that it remains the top safe haven currency. On conflict in the Middle East, Powell noted “it’s too early to know what any economic implications might be.”
© 2024 AFP
