Federal Reserve President Jerome Powell said on Tuesday that if inflationary pressures are contained, the US Central Bank will reach a point where he could cut interest rates, but “we don’t need to be in a hurry.”
Powell, answering a question during a hearing at the House’s Financial Services Committee about the fact that two Fed directors recently stated that an interest rate in July could be justifiable, said he would not indicate any specific month for a reduction in rates.
He stated that the current central bank’s monetary policy approach is not intended to endorse or criticize Trump government tariff plans, just dealing with the expected impact on inflation.
“We are not commenting on tariffs,” Powell told the House Financial Services Committee, led by the Republicans. “Our job is to maintain inflation under control, and when policies have significant short and medium term implications, then inflation becomes our work.”
Powell answered questions from parliamentarians who suggested that the Fed has been more proactive in the anticipation of inflation resulting from the increase in tariffs than it was regarding spending policies during the Biden government. At that time, the Fed did not predict that these policies should increase inflation and increased rates quickly when prices began to rise.
In response to the suggestions of Republican Party members that fees should fall, as required by President Donald Trump, Powell said the prospect of increasing inflation throughout the year is widely shared by economists.
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“All the professional analysts I know … They expect a significant increase in inflation throughout this year,” said Powell, explaining the reluctance of the Fed to reduce rates as the main aspects of Trump’s trade policy remain unresolved.
Powell said the Central Bank needs more time to verify that rates will increase inflation before considering reducing rates.
“Increases in tariffs this year are likely to raise prices and weigh on economic activity,” Powell said in a statement at the beginning of the hearing.
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“The effects on inflation can be short -lived, reflecting a punctual change in price level. It is also possible that inflationary effects are more persistent … For now, we are well positioned to wait more about the probable course of the economy before considering any adjustments in our monetary policy.”
Following the disclosure of Powell’s testimony, investors reduced bets that the Central Bank could cut the interest rate at the July meeting and increased the perception of the chances of reducing the rate in September, with another reduction at the end of the year.
Powell’s testimony, as usually happens in his semiannual appearances in Congress, largely follows the Central Bank’s latest monetary policy statement approved last week. At that meeting, the Fed authorities unanimously voted to maintain the basic interest rate stable at the current range of 4.25% to 4.5%, and gave no indication that cut cuts would be imminent.
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New economic projections released at the time showed that the authorities in the median expect two cuts of 0.25 percentage points by the end of the year, in line with current market prices.
In recent days, two Fed directors, both appointed by Trump, said the rates could fall at the July meeting, as inflation has not yet rose in response to tariffs, while two regional banks presidents said fear that inflation intensifies in the rest of the year.
Trump, who appointed Powell as president in his first term, but should replace him when his term end, in the northern hemisphere spring, repeatedly asked for sharp cuts at the rates.
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“We should be at least two or three points below,” he said in a post on social networks before the audience, adding, in reference to Powell, that he expected “Congress to actually work that very dumb and hard head.”
Powell has built strong alliances in Congress throughout his three terms as president of the Fed, often receiving praise from Republicans and Democrats for his supervision from the Fed.
In his statement, Powell said the economy continues in a “solid position,” with low unemployment and inflation far below the pandemic era peak.
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However, most of Trump’s trade policies remain in flow, with the end of the final of July 9 for the imposition of higher tariffs on a large set of countries.
The result of this change of policy will be fundamental for the Fed to understand, Powell said.
“Changes in policies continue to evolve, and their effects on the economy remain uncertain,” said Powell.
(with Reuters)
