Higher fares may begin to raise inflation this summer (in the northern hemisphere), a period that will be crucial for the Federal Reserve to consider possible rates in the rates, the Fed Chair, Jerome Powell, told the US Congress.
Summer in the northern hemisphere runs from late June at the end of September.
Pressured by republican members of the House Financial Services Committee on why the Fed was not cutting up, as President Donald Trump demanded, Powell said he and many Fed members expect inflation to start to rise soon. According to him, the Central Bank is not in a hurry to relieve interest in the meantime.
Powell said specifically that he would not pave the way for interest at the July meeting of the Fed, as two of his colleagues recently suggested, or in any other meeting.
“I don’t want to focus on any specific meeting. I don’t think we need to be in a hurry,” said Powell, considering the still strong job market and the great uncertainty about the impact of the tariff debate not yet resolved.
Referring to expected price increases due to tariffs, Powell said: “We should start to see this during the summer, at June and July numbers… If we do not, we are perfectly open to the idea that the transfer (to consumers) will be smaller than we think, and if that happens, this will be important to politics.”
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“I believe that if inflationary pressures remain contained, we will reach a point where we will cut the rates sooner or later,” he added.
With the Central Bank largely away, waiting for the result of Trump’s tariff negotiations, Powell was repeatedly questioned why the Fed seemed concerned about this issue and was not cutting the rates, as inflation has so far been modest.
Powell said the Fed policy is not intended to endorse or criticize the Trump administration’s approach to commerce, only dealing with the impact of inflation that the Fed and the broader forecasts expect to gain strength throughout the rest of the year.
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“We are not commenting on tariffs,” said Powell. “Our job is to maintain inflation under control, and when policies have significant short and medium term implications, then inflation becomes our work.”
“All the professional analysts I know … They expect a significant increase in inflation throughout this year,” Powell said, when dealing with the reluctance of the Fed to cut rates while the main aspects of Trump’s trade policy remain unresolved.
Betting
In testimony prepared for the House panel, Powell also noted that these effects “can be short -lived, reflecting a punctual change in price level.”
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“It is also possible that inflationary effects are more persistent… For now, we are well positioned to wait to learn more about the probable course of the economy before considering any adjustments in our (monetary) policy stance.”
Following the disclosure of Powell’s testimony, investors reduced bets that the Central Bank could cut off its basic interest rate at July, raising the chances of a rate reduction in September, with another decrease at the end of the year.
Powell’s testimony, as usually happens in his semester appearances in Congress, largely follows the Fed’s latest monetary policy statement last week. Fed authorities voted unanimously at that meeting to maintain the basic interest rate of 4.25% to 4.5%, and gave no indication that interest cuts were imminent.
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New economic projections released at the time showed that authorities expected two 0.25 percentage sections in rates by the end of the year, in line with current market prices.
In recent days, two Fed leaders, both nominated by Trump, said the rates could fall at the July meeting, because inflation has not yet increased in response to tariffs. Three other Fed leaders said they still care about the possibility of inflation intensifying in the rest of the year.
Trump appointed Powell as Chair of the Fed in his first term, but should replace him when the leader’s term end next spring (between March and the end of June). The Republican repeatedly called for sharp cuts in the rates.
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“We should be at least two to three points below,” Trump said in a social media post before the audience, adding, in reference to Powell, that he expected “Congress to actually end this very dumb and stubborn person.”
