Fed's Powell: Learning Process Continues Through Summer

Fed's Powell: Learning Process Continues Through Summer

Federal Reserve Chair Jerome Powell has reiterated the central bank's cautious approach to interest rate adjustments, stating that the Fed will wait and see how the economy evolves before making any decisions. This stance directly contradicts President Donald Trump's repeated calls for immediate rate cuts.

Powell made these remarks during prepared testimony before the House Financial Services Committee on Tuesday, June 24, 2025. He emphasized that the Fed is well-positioned to wait and gather more information about the economy's trajectory before considering any policy adjustments. This approach is a departure from Trump's urging, which has been ongoing since the start of his presidency.

Powell's comments come amid ongoing tariff-related concerns. He noted that increases in tariffs this year are likely to push up prices and weigh on economic activity. However, he also acknowledged that the impact of tariffs could be temporary or more persistent. The Fed's primary obligation, according to Powell, is to prevent a one-time increase in the price level from becoming an ongoing inflation problem.

The Fed's 19-member interest rate setting committee voted unanimously last week to keep its key rate unchanged. However, the committee's forecasts revealed emerging divisions among policymakers. Seven projected no rate cuts at all this year, two just one, while 10 forecast at least two reductions.

Powell suggested that the Fed would monitor the economy's evolution over the summer in response to Trump's tariffs and other policies before deciding whether to cut rates. His comments indicated that a rate reduction might not occur until September. However, two high-profile members of the Fed's governing board, Michelle Bowman and Christopher Waller, have since suggested that the central bank could cut its rate as early as its next meeting in July.

Trump has been urging the Fed to cut rates to save the U.S. government money on its interest payments. However, the Fed has long resisted considering the government's financing costs when making interest rate decisions, focusing instead on the health of the economy and inflation. Waller, in a television interview, stated that lowering the government's borrowing costs is "not our job" and that it is up to Congress and the White House to reduce the budget deficit.

Despite Trump's claims, the European Central Bank has reduced its key rate eight times in the last 12 months, while the Fed has done so three times, all late last year. The Fed's cuts last year lowered its rate to about 4.3%, but since then it has put reductions on pause due to concerns about Trump's tariffs pushing up inflation.

Inflation has cooled this year despite concerns about the impact of tariffs. The consumer price index ticked up just 0.1% from April to May, indicating that price pressures are muted. Prices for some goods rose last month, but the cost for many services such as air fares and hotels fell, offsetting any tariff impact. Compared with a year ago, prices rose 2.4% in May, up from 2.3% in April.

References:
[1] https://www.courant.com/2025/06/24/federal-reserve-jerome-powell/
[2] https://apnews.com/article/interest-rates-federal-reserve-trump-inflation-df5b9ac09f0cd283797c6c294a98da9c