We can watch the economy before cutting rates: Powell
Chair Jerome Powell indicated on Tuesday that the Federal Reserve will adopt a wait-and-see approach regarding the evolution of the economy before making any decisions on reducing its key interest rate, a position that contrasts sharply with President Donald Trump’s demands for immediate cuts. Currently, we find ourselves in a favorable position to observe the unfolding economic landscape before contemplating any modifications to our policy approach, Powell stated in prepared remarks he will present early Tuesday before the House Financial Services Committee.
Powell is confronted with two days of potentially rigorous questioning on Capitol Hill, as Trump has consistently called for the Fed to lower borrowing costs. Powell has frequently garnered a favorable response from House and Senate committees that supervise the Fed, or at the very least, faced subdued criticism. Powell has frequently referenced his backing in Congress as a safeguard against Trump’s criticisms; however, such support may diminish in light of the president’s persistent onslaughts.
In the early hours of Tuesday morning, Trump expressed his frustration on his social media platform, stating: I hope Congress really works this very dumb, hardheaded person, over. The repercussions of his incompetence will be felt for many years ahead. During Powell’s most recent appearance before Congress in February, Rep. French Hill, the Arkansas Republican and committee chair, pressed Powell to guarantee that inflation would revert to the Fed’s target of 2 percent, a goal that generally necessitates maintaining elevated interest rates.
The Federal Reserve’s 19-member committee, under the leadership of the chair, deliberates on the appropriate adjustments to borrowing costs, determining whether to implement cuts or increases. Central banks generally raise interest rates to temper economic activity in order to combat or avert inflation, while they tend to lower rates during periods of economic weakness to encourage borrowing and spending. The Federal Reserve’s committee reached a unanimous decision last week to maintain its key interest rate at the current level. However, the Fed also published projections for potential future rate reductions, indicating the presence of growing divisions among its policymakers. Seven anticipate no rate cuts this year, two expect just one, while ten predict at least two reductions.
During a recent news conference, Powell indicated that the Federal Reserve would assess the economic developments throughout the summer in light of Trump’s tariffs and other policies prior to making a decision on potential rate cuts. His remarks indicated that a reduction in rates is unlikely to take place before September. However, two prominent members of the Federal Reserve’s governing board, Michelle Bowman and Christopher Waller, have indicated that the central bank might consider a rate cut as soon as its upcoming meeting in July. Both officials were appointed by Trump during his initial term, and Waller frequently emerges as a prospective successor to Powell when his term concludes next May.
The Federal Reserve implemented three rate cuts towards the end of the previous year, bringing the rate down to approximately 4.3 percent. However, it has since halted rate cuts due to apprehensions that Trump’s tariffs may lead to increased inflation. The president has imposed a 10 per cent duty on all imports, complemented by an extra 30 per cent levy on goods originating from China, 50 per cent on steel and aluminum, and 25 per cent on automobiles.
Inflation has consistently moderated this year, even in the face of pervasive apprehensions among economists regarding the repercussions of tariffs. The consumer price index increased by a mere 0.1 percent from April to May, according to the government’s report last week, indicating that inflationary pressures remain subdued. Last month, there was an increase in prices for certain goods; however, the decline in costs for various services, including air fares and hotels, mitigated any effects from tariffs. In comparison to the previous year, prices experienced an increase of 2.4 percent in May, rising from 2.3 percent in April.
