Federal Reserve Chair Jerome Powell reaffirmed the central bank’s decision to maintain its key interest rate as it monitors the impact of President Donald Trump’s tariffs on the economy. This announcement was made during a conference in Sintra, Portugal, where Powell emphasized the need for careful consideration in the face of ongoing political pressure for rate cuts from the Trump administration.
Despite repeated calls from Trump to lower borrowing costs, Powell insists the Fed will withhold any changes until it can better assess the economic effects of the tariffs implemented this year.
Powell acknowledged the possibility of rising U.S. inflation as summer approaches, although he stated that the timing and extent of any such increase remain uncertain. He insisted, “As long as the economy is in solid shape, we think the prudent thing to do is to wait and see what those effects might be,” referring specifically to the broad tariffs enacted by the Trump administration.
The ongoing tug-of-war between the Fed and the White House has sparked concerns over the independence of the central bank. Trump has continued to urge the Fed to cut rates, arguing that it would save taxpayers money on interest costs tied to the national debt and stimulate economic growth. However, financial markets have largely brushed off Trump’s criticisms, particularly since the Supreme Court clarified that the president cannot fire the Fed chair.
In his remarks, Powell suggested that without the looming uncertainty of tariffs, the Fed might have already opted for a rate cut. He highlighted that the committee had decided to pause after recognizing the high projections for inflation resulting from the tariffs.
Looking ahead to the next Federal Reserve policy meeting scheduled for July 29-30, Powell stated he wasn’t ruling out a potential rate cut but did not commit to any specific action. “I wouldn’t take any meeting off the table or put it directly on the table,” he said. Though the general expectation among economists leans toward a rate cut occurring in September at the earliest.
The day prior, President Trump escalated his criticism of Powell, broadening his attack to include the entire Federal Reserve governing board. He stated, “The board just sits there and watches, so they are equally to blame,” implying that the board members share responsibility for the current economic situation.
Powell, reflecting on his tenure and the pressures of the job, mentioned, “All I want and all anybody at the Fed wants is to deliver an economy that has price stability, maximum employment, financial stability.” His commitment to his duties was affirmed when he stated that outside influences, including Trump’s public remarks, wouldn’t deter him from focusing on his responsibilities.
In a moment of solidarity, Powell received applause from other central bankers, including Christine Lagarde of the European Central Bank, who echoed support for Powell’s approach, affirming, “We would do exactly the same thing as Jay Powell has done. The same thing.”
On social media, President Trump highlighted a list ranking 44 countries based on their central bank interest rates, pointing out that certain nations like Switzerland, Cambodia, and Japan maintain significantly lower rates of 0.25% to 0.5%. He remarked, “Should be here,” directing his commentary at the Federal Reserve.
Trump’s insistence on Fed rate cuts stems from a belief that lower rates would substantially decrease the government’s borrowing costs. However, the relationship between the Fed’s short-term rates and broader borrowing costs is not so straightforward. While a cut in short-term rates can influence other interest rates, various market dynamics also play a crucial role.
Notably, when the Powell-led Fed first opted to reduce its short-term rate last September, the yield on the 10-year Treasury note increased, leading to higher mortgage rates, challenging the idea that such moves would reduce borrowing costs universally.
This year, the Fed has maintained its short-term interest rate at approximately 4.3%, after having cut it thrice in 2024. Powell had previously indicated at a June press conference that the central bank would gain more clarity over the summer regarding the potential inflationary effects of Trump’s tariffs. His comments suggested that any likelihood of rate cuts would be assessed more thoroughly at the September meeting.
However, subsequent remarks from Fed governors Waller and Michelle Bowman, both of whom were appointed by Trump, hinted that persistent inflation from tariffs might not be a foregone conclusion. They implied that they would likely support a rate cut in July as inflation trends have remained stable.
Currently, inflation appears to be easing; consumer prices rose only 2.4% in May on a year-over-year basis, which is near the Federal Reserve’s targeted 2% rate and considerably lower than rates seen a year prior.
As the landscape of monetary policy continues to shift, Powell faces significant challenges navigating political pressure while striving to fulfill the Fed’s mandates effectively.
image source from：mainlinemedianews
