Fed's Powell Blames Trump Tariffs for Delaying 2025 Rate Cuts

Federal Reserve Chairman Jerome Powell has stated that the central bank would have already lowered interest rates in 2025 if it weren't for the tariffs imposed by the Trump administration. This revelation came during a conference of central bankers, where Powell was asked about the impact of the White House’s tariff regime on the Fed’s decision-making process. Powell acknowledged that the uncertainty caused by the tariffs has been a significant factor in the Fed’s hesitation to cut interest rates.

Powell explained that the Fed had initially paused its rate-cutting cycle at the start of the year due to the size and impact of the tariffs. The tariffs led to a material increase in inflation forecasts for the United States, prompting the Fed to adopt a cautious approach. Powell emphasized that the Fed did not overreact to the situation but chose to wait and observe the effects of the tariffs before making any decisions.

The economic uncertainty caused by the tariffs has affected all market participants, not just the Fed. President Trump’s announcement of widespread and harsh tariff policies in early April led to a stock market crash, soaring bond yields, and a weakening dollar. Businesses were forced into a holding pattern, delaying future investment plans and risking a deeper recession. Powell stated that the prudent thing to do was to wait and learn more about the effects of the tariffs before taking any action.

Powell’s comments highlight the irony of the current economic situation. The pause in interest rate cuts was due to the heightened uncertainty caused by Trump’s tariff policy, while Trump himself has been critical of Powell for not lowering interest rates more quickly. The President has repeatedly called for interest rate cuts, arguing that lower rates would stimulate economic growth. However, the Fed has remained cautious, citing the need to monitor the effects of tariffs on inflation and economic stability.

Powell’s remarks underscore the significant impact that trade policies have had on the Fed’s monetary decisions. Central bankers have broadly acknowledged that tariffs are expected to influence the US economy, and this has been a key factor in their deliberations. The Fed’s stance on interest rates has been a contentious issue, with Trump frequently criticizing Powell for not cutting rates more aggressively. The president has accused the Fed of being too slow to respond to economic challenges, particularly those posed by tariffs. However, Powell has maintained that the Fed’s primary mandate is to ensure price stability and maximum employment, and that its decisions are based on a thorough analysis of economic data.

In summary, Powell’s comments highlight the complex interplay between trade policy and monetary decisions. The Fed’s reluctance to lower interest rates, despite calls from the White House, reflects its commitment to a data-driven approach and its recognition of the potential economic impacts of tariffs. As trade tensions continue to evolve, the Fed will likely remain vigilant in monitoring their effects on the economy and adjusting its policies accordingly.