The Federal Reserve is engaged in a delicate balancing act, with Chair Jerome Powell weighing the impact of tariffs against Donald Trump’s insistent demands for interest rate cuts. Powell maintains that the Fed needs to understand how tariffs affect US prices before adjusting its monetary policy.
Trump, in a recent social media post, branded Powell “very dumb” and attributed perceived economic damage to the Fed’s “incompetence” for not cutting rates since December. He claimed this inaction, partly due to the instability of his own administration’s economic strategies, would lead to lasting economic harm. Powell, however, is steadfast in his commitment to the Fed’s independence.
Appearing before the US House of Representatives, Powell stated that Trump’s tariffs are “likely” to increase prices, potentially complicating the Fed’s efforts to bring down US inflation. He acknowledged the frequent shifts in the administration’s policies, stating that their effects on the economy remain uncertain. The Fed chair noted that expectations for tariff levels and their economic effects peaked in April and have since receded.
Powell underscored the “obligation” of the central bank’s policymakers to “keep longer-term inflation expectations well anchored and to prevent a one-time increase in the price level from becoming an ongoing inflation problem.” He affirmed that the Fed is currently “well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”
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