Powell repeats that rate cuts can wait while Fed studies impact of tariffs

Federal Reserve Chair Jerome Powell said on Tuesday the U.S. central bank needs more time to see whether rising tariffs will raise inflation before considering the interest rate cuts that President Donald Trump is demanding.

"Tariff increases this year are likely to raise prices and weigh on economic activity," Powell said in testimony prepared for a hearing before the House Financial Services Committee.

"The effects on inflation could be short-lived, reflecting a one-off change in the price level. It is also possible that the inflationary effects could be more persistent... For now, we are well placed to wait to learn more about the likely course of the economy before considering any adjustments to our monetary policy."

Powell's testimony echoes the central bank's most recent policy statement, released last week when Fed officials voted unanimously to keep the benchmark interest rate in a range of 4.25% to 4.5% and gave no indication that cuts were imminent.

New economic projections released at the time showed that officials expect two 25 basis point rate cuts by the end of the year, with investors expecting the first to come at the Fed's September meeting.

In recent days, two Fed governors, both appointed by Trump, have said rates could fall as early as the July meeting since inflation has not yet risen in response to the tariffs, while two regional bank presidents have said they still fear inflation will pick up later in the year.

Trump, who appointed Powell as chair in his first term but is expected to replace him when his term ends next spring, has repeatedly called for sharp rate cuts.

"We should be at least two or three points down," he said in a social media post ahead of the hearing, adding, in reference to Powell, that he hopes "Congress really works on this very stupid, very hard-headed person."

Powell has built strong alliances in Congress over his three terms as Fed chair, often drawing praise from Republicans and Democrats alike for his oversight of the Fed.

In his prepared testimony, Powell said the economy remains in a "solid position," with unemployment low and inflation well below its pandemic-era peak.

But much of Trump's trade policies continue to shift as a July 9 deadline for imposing higher tariffs on a wide range of countries approaches.

The outcome of that shift will be critical for the Fed to understand, Powell said.

"Policy changes continue to evolve, and their effects on the economy remain uncertain," Powell said.