It is still too early for the Federal Reserve to consider the reduction of interest rates, said President Jerome Powell on Tuesday (24).
“Changes in policies continue to evolve, and their effects on the economy remain uncertain,” Powell said in his testimony prepared for his semiannual monetary policy report to Congress.
“For now, we are well positioned to wait to learn more about the probable course of the economy before considering any adjustments in our policy stance,” he said.
Powell’s latest comments were made at a time when some Fed authorities joined President Donald Trump to order to reduce loan costs.
On the other hand, the extent has not yet been defined.
“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,” Powell said.
He added that “later at the hearing, he noted that most analysts” expect a very substantial wave of price increases to reach the consumer. “
Fed authorities raised the possibility that inflation driven by tariffs was “temporary” or just a single increase – a situation that resembles the rash of inflation after pandemic when authorities said price increases would be “transient”. This proved not the case.
Fed authorities have maintained their unchanged reference loan rate since January – in a range of 4.25% to 4.5% – saying they want to see how significant changes in Trump policy appear on economic data before resuming rate cuts.
At the end of last year, the Fed reduced its basic interest rate at a percentage point after keeping it raised for over a year.
Fed observes attentively the consequences of Trump’s tariffs
Trump rates are expected to increase prices and eventually weaken economic growth. But so far there is little evidence of it.
Still, most economists expect this to change to worse soon.
JPMorgan analysts expect “the peak of impact” from Trump’s tariffs to take place in late summer.
Powell, at his hearing on Tuesday, said the Fed authorities, including himself, presented several scenarios on how the US economy could respond to tariffs due to short-term implications for prices and employment.
“It would not be appropriate to comment on the policy of tariffs. We do not have an opinion. It is not our function and we would simply not do that. Our work is to keep inflation under control and also maintain the maximum level of employment,” Powell said, adding that Trump’s policies affect these two goals.
There is also the possibility that prices rise because of the conflict in the Middle East. Powell stated that “it is too early to know any economic implications” and that central banks are “observing the situation.”
However, some Fed authorities have minimized these risks, agreeing with Trump that it may be time to reduce rates.
If inflation remains moderate, the Fed should start reducing rates as early as July, Fed’s Vice President Michelle Bowman said on Monday (23).
Fed governor Christopher Waller said the same last week.
Although Bowman and Waller are both appointed by Trump, the Fed is an independent institution that does not consider politics in its decisions. Powell Cehou reiterated on Tuesday that.
About that, .
“Too late. Jerome Powell of the Fed will be in Congress today to explain, among other things, why he is refusing to lower the rate,” Trump wrote on his social media platform.
“I hope Congress really works with this very stupid person and hard head. We will be paying for their incompetence for many years,” he added.
When can the Fed reduce interest?
Despite the demands of Trump and some central bankers signal that they are comfortable with the reduction of rates soon – if data cooperates – cutting rates in July will not be easy to defend by the Fed and remains unlikely.
According to most economists, Trump’s fares will begin to affect prices more clearly around that time.
“I would be surprised if the Fed again cut rates in July, because this is when price increases will start to appear. Are you going to make cuts in the middle of it? CNN.
Powell noted earlier this month that Trump’s aggressive tariff regime has already begun to reverberate throughout the economy and is just a matter of “when”, not “if”, it will affect consumer prices.
“We are starting to see some effects. We hope to see more,” Powell said on June 18, after the Fed authorities voted to keep stable rates for the fourth consecutive time.
“We had the inflation of goods rising a little and, of course, we hope to see more of this throughout the summer.”
Not even Wall Street is believing in the possibility of a cut in July. Investors currently see a 77% chance that the Fed remains firm again at its July 29 and 30 meeting, according to future data.
Powell said the Fed could start cutting again “if inflationary pressures remain contained,” but that would not happen anytime soon. He added that the economy can show “significant effects” of tariffs in June, July or August.
JPMorgan analysts Goldman Sachs, Barclays, Nomura and Deutsche Bank still estimate only one interest rate cut this year in December.
Powell said to legislators, “I wouldn’t like to point to a specific meeting. I don’t think we need to be in a hurry because the economy is still strong.”
It is likely that a quarter of a quarter of interest rates at the end of the year does not thank Trump, which has repeatedly requested higher rates in the rates. The president said the federal government is stuck with massive interest rate payments on his debt because the Fed has not reduced fees.
The Fed, however, does not take into account the government’s finances by setting the rates. He base his decision on economic data on the pursuit of his double maximum employment term and stable prices.
