Market News

BY Jennifer Schonberger · Senior Reporter

Federal Reserve Chair Jerome Powell told House lawmakers today that the central bank is "well positioned to wait" on any interest rate adjustments until it has more clarity on how President Trump’s tariffs will affect inflation and the direction of the US economy.

The reinforcement of Powell’s wait-and-see strategy comes as he faces intensifying pressure for rate cuts from the White House and even some of his fellow central bank policymakers.

"Increases in tariffs this year are likely to push up prices and weigh on economic activity," Powell said during his semiannual testimony Tuesday before the House Committee on Financial Services.

"The effects on inflation could be short lived—reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent,” he added, repeating the caution he emphasized last week after the central bank kept monetary policy unchanged for the fourth consecutive meeting.

The Fed is "well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance."

Powell acknowledged under questioning from GOP Rep. French Hill, the chair of the House committee, that "many paths are possible" on rates, including "cutting sooner" if inflation does not heat up as expected or the labor market weakens.

Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments

But when asked by another lawmaker whether two rates are still on the table this year — the median estimate of his central bank colleagues — Powell said “what will happen with rates is dependent on the economy and that is highly uncertain.”

This guarded approach by Powell is inflaming tensions with Trump, who continues to hammer the chairman and the central bank to cut rates.

The president’s attacks intensified at the end of last week as Trump called for rates to drop from 4.25%-4.5% to between 1% and 2% and said of Powell and the Fed's Board of governors: "I don’t know why the Board doesn’t override this Total and Complete Moron!"

He repeated some of those points in a Tuesday social-media post at 1:32 AM, calling for rates "at least two to three points lower" and saying that Powell "will be in Congress today in order to explain, among other things, why he is refusing to lower the Rate."

"I hope Congress really works this very dumb, hardheaded person, over. We will be paying for his incompetence for many years to come."

Trump is not the only one calling for lower rates. Even some of Powell’s fellow policymakers — Fed governors Michelle Bowman and Chris Waller — have said in recent days that they now see cutting rates as soon as the Fed’s next policy meeting in July due to mild inflation readings of late.

Bowman made the argument for such a move in a speech Monday, saying that inflation has declined or come in below expectations over the past several months and asserting that trade policy will only amount to "minimal impacts" on the Fed's preferred inflation measure.

She also cited concerns that downside risks to employment could "soon become more salient, given recent softness in spending and signs of fragility in the labor market."

The comments from Bowman and Waller are not the only sign of an increasing divide within the Fed.

There was also a difference of opinion evident last week in the Fed's latest "dot plot" outlining future interest rate moves. While eight officials saw two cuts still happening in 2025, seven officials predicted no cuts at all — up from the four officials who made that call previously.

Cleveland Fed president Beth Hammack added to that debate Tuesday as she said in a speech that "I don’t see a weakening in the economy that would merit imminent rate cuts" and that "It may well be the case that policy remains on hold for quite some time."

Atlanta Fed president Raphael Bostic also told Reuters that "I think we have some space and time" on any cuts due to expected price increases from tariffs, predicting a single reduction late in 2025.

Powell has consistently brushed off any criticism from the president, saying that it doesn’t interfere with his job and that he plans to serve out his full chairmanship term slated to end in May 2026.

When asked Tuesday about Trump's insults, Powell said "we are focused on one thing: We want to deliver a good economy for the benefit of the American people. Anything else is kind of a distraction."

"I don’t know how else to do the job," he added.

He was asked by one lawmaker how Trump’s strikes on three Iranian nuclear sites affect the path forward and said "It's too early to know what the economic implications might be."

On Monday evening Trump said Israel and Iran had agreed to a cease-fire that he said could lead to the end of the war between the countries.

Some Fed watchers worry that any sustained increase in oil prices would add to the inflationary impulse already present in the US from Trump’s tariffs.

Wall Street analysts at JPMorgan Chase (JPM) have warned that a prolonged conflict and the potential closure of the critical Strait of Hormuz could drive oil prices as high as $120 a barrel, pushing US inflation back toward 5%.

That could bolster the argument of some hawks at the Fed that rates need to stay where they are for longer to protect against another inflation surge.

On the other hand, there is also an argument circulating on Wall Street that any new conflict in the Middle East could push the Federal Reserve to cut interest rates sooner than expected.

Trump said Friday that if Powell is concerned about inflation or anything else, then “all he has to do is bring the rate down, so we can benefit on interest costs, and raise it in the future when and if these 'other elements' happen.”

He also mused once more about removing Powell before his term as chair ends next May, an option he previously said he had rejected.

"Maybe, just maybe, I’ll have to change my mind about firing him?" Trump posted. "But regardless, his Term ends shortly!"

Powell noted last week that recent inflation reports have been favorable, but that goods prices have been moving up following the introduction of tariffs and there could be more of that this summer.

"We’re beginning to see some effects, and we do expect to see more of them over the coming months," he told reporters last Wednesday.

Thus, the right thing to do for now, he added, is “hold where we are” on rates.

He didn't waver from that view Tuesday as Powell stressed that it is the Fed’s job to prevent any one-time price increases from turning into an ongoing inflation problem. On Wednesday he will have another chance to explain his views before a Senate committee.

"Policy changes continue to evolve, and their effects on the economy remain uncertain," he added Tuesday.