Chair Jerome Powell’s statement, which is directly in line with President Donald Trump’s demands for immediate cuts, puts the US Federal Reserve at odds with itself with the direction the economy will take before deciding whether to cut its key interest rate.
In prepared remarks made on Tuesday before the Republican-led US House Committee on Financial Services, Powell said, “We are well positioned for the moment to wait to learn more about the likely course of the economy before making any adjustments to our policy stance.”
The Fed or US central bank is only supposed to deal with the anticipated impact on inflation, Powell has told members of Congress.
Powell stated that the Federal Reserve is not making any comments on tariffs. Our job is to control inflation, and when policies have long- and long-term, meaningful effects, inflation becomes our responsibility.
In response to GOP members’ suggestions that interest rates should be decreased, as Trump has repeatedly demanded, Powell stated that economists have a common view of higher inflation over the course of the year.
According to Powell, “every professional forecaster I know of anticipates a significant increase in inflation over the course of this year.” Powell further explained why the Fed is reluctant to cut rates because significant issues with Trump’s trade policy are still unresolved.
looming changes
Before considering lowering rates, Powell claimed the central bank needs more time to assess whether rising tariffs increase inflation. He anticipates that the Fed will receive a lot of data about the effects of tariffs on inflation over the coming months, anticipating that he will start seeing more data impact from readings from June.
In his testimony at the hearing’s opening, Powell said, “Increases in tariffs this year are likely to push up prices and weigh on economic activity.
“A one-time change in the price level could have a negative impact on inflation,” the author speculates. We are well positioned to wait to learn more about the likely direction of the economy before making any adjustments to our policy stance. It is also possible that the inflationary effects could instead be more persistent.
Investors placed fewer bets on the central bank’s ability to reduce its policy interest rate as soon as its July meeting, and raised the likelihood of a rate reduction in September, with another rate reduction set to occur later in the year.
The central bank’s most recent policy statement, approved last week, is largely consistent with Powell’s testimony, as is typically the case with his semiannual congressional appearances. No indication that rate cuts were on the horizon were presented at the meeting, where the benchmark interest rate was unanimously set to remain steady at 4.25 percent to 4.5%.
According to recent economic projections, officials at the time anticipate two quarter-point rate cuts by the end of the year, in line with market pricing.
Two Fed governors, both Trump appointees, have stated that rates could drop as soon as the July meeting, not yet in response to the rise in inflation, while two reserve bank presidents worry that the rate will rise over the course of the year.
Trump has repeatedly called for steep rate cuts, including the one that gave Powell his first term and is expected to take his place when his term expires in the spring.
In a social media post before the hearing, he said, “We should be at least two to three points lower,” adding that he hoped “Congress really works this very stupid, hardheaded person, over.”
Over the course of his three terms as chair of the Fed, Powell has established strong alliances in Congress, and he has frequently received praise from Republicans and Democrats for his oversight of the agency.
In his prepared testimony, Powell claimed that the economy is still in a “solid position” with no unemployment or inflation below its pandemic-era high.
However, there is still a lot of uncertainty surrounding Trump’s trade policies as a July 9 deadline for imposing higher tariffs on a number of nations.
According to Powell, the Fed will need to understand the result of that policy change.
According to Powell, “political changes are evolving, and the impact on the economy is still undetermined.”
Consumer confidence is dipped again as a result of Powell’s comments on inflation. The Conference Board’s monthly report was released today, which revealed the loss of half of the consumer confidence gains since May.
Source: Aljazeera
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