Powell Responds to Trump: Fed Cautious on Rates Amidst Tariff Uncertainty

Jerome Powell, the Federal Reserve chair, is responding to intense pressure from Donald Trump by defending the central bank’s cautious approach to interest rates. Powell insists that the Fed must fully understand the impact of tariffs on US prices before making any cuts, a direct contradiction to Trump’s repeated calls for immediate rate reductions to stimulate the economy.
Trump, in a recent social media outburst, called Powell “very dumb” and attributed significant economic damage to the Fed’s decision to hold rates since December. He claimed this was a result of the Fed’s “incompetence” and hinted at long-term repercussions. Powell, however, is steadfast in his commitment to the Fed’s independence and its role in maintaining economic stability.
Testifying before the US House of Representatives, Powell stated that Trump’s tariffs are “likely” to contribute to higher prices, potentially hindering the Fed’s long-standing battle against inflation. He also highlighted the unpredictable nature of the administration’s policy shifts, noting that their economic effects are still largely unknown. Powell indicated that projections for tariff levels and their economic impact reached their highest point in April but have since declined.
Powell emphasized the Fed’s “obligation” to maintain stable longer-term inflation expectations, preventing a temporary rise in prices from evolving into a persistent inflationary issue. He concluded that the central bank is currently in a good position to wait for more clarity on the economic outlook before considering any changes to its policy stance.