Federal Reserve Keeps Rates Steady Amid Inflation Fears

The Federal Reserve has decided to maintain its current interest rate policy, despite calls from President Donald Trump to lower rates. The central bank's decision is driven by concerns over a potential inflation spike later this year, as indicated by chair Jerome Powell during a congressional hearing. Powell emphasized that the Fed needs to assess the full impact of the anticipated inflation before making any adjustments to interest rates.

Powell's remarks came just hours after Trump criticized the Fed's decision to keep rates steady, arguing that they should be lowered by two to three percentage points. Trump's persistent demands for lower interest rates have put him at odds with the Fed, which has maintained its target rate between 4.25% and 4.5% since July 2023. The Fed's cautious approach has been met with frustration from the White House, with Trump even suggesting that Powell should be replaced.

During his testimony before the House Financial Services Committee, Powell faced repeated questions about Trump's policies, particularly on trade and immigration. However, Powell declined to comment, stating that it was inappropriate for the central bank to weigh in on policy decisions made by elected officials. Instead, Powell focused on the economic uncertainty caused by Trump's tariff policies, which have disrupted global markets and led to volatility in stock prices.

Powell acknowledged that the tariffs implemented in April are expected to cause a one-time spike in prices, but the Fed is monitoring the situation closely to ensure that prices do not remain elevated or continue to increase. The central bank is particularly concerned about the timing, amount, and persistence of any inflation increases that may arise from the tariffs. Powell noted that the effects of the tariffs are not expected to be fully felt until summer, as businesses and consumers deplete their existing inventories and begin purchasing goods subject to the new levies.

The Fed's wait-and-see approach has drawn criticism from those who believe that immediate rate cuts would help stimulate the economy and offset the projected decline in growth due to the tariffs. Vice President JD Vance joined Trump in criticizing the Fed's decision, describing it as "monetary malpractice" following the latest Consumer Price Index report, which showed a modest increase in prices. However, Powell has maintained that the Fed's primary focus is on ensuring economic stability and that any rate cuts will be based on a thorough assessment of the data.