Powell reiterates Fed is waiting for clarity on tariffs, not in a rush to cut rates

On the evening of June 24, Federal Reserve Chairman Jerome Powell will reiterate in testimony to Congress that the Fed is in no rush to cut rates as officials are still waiting for further clarity on the economic impact of President Trump's tariffs.

"The impact of tariffs will depend on a variety of factors, including the final level of implementation," Powell said in a speech to Congress. "We are in a good position to wait for more information about the direction of the economy without having to adjust our policy stance until then."

His testimony came after the Fed decided last week to keep interest rates unchanged at 4.25% to 4.5%.

The policy stance of holding back angered Trump, who has been calling for rate cuts and claiming that the Fed's unchanged interest rates made borrowing costs for the U.S. government too high.

Trump said on social media early Tuesday: "'Too Late' Jerome Powell will appear before Congress today to explain why he refused to cut interest rates. I hope Congress can 'fix' this stupid, stubborn man. We will pay for his incompetence for many years."

Powell and several policymakers have previously pointed to the Trump administration's increased use of tariffs and other policy measures as an important reason for their decision to keep interest rates unchanged. Many economists predict that tariffs will push up inflation and curb economic growth, although there is significant uncertainty about this expectation.

Trump has often wavered on the specific details of tariff policy, while the administration has said it is advancing trade agreements that may change the nature and level of tariffs.

In his speech, Powell said: "Market expectations for tariff levels peaked in April and have since retreated. Despite this, tariffs imposed this year are still likely to push up prices and suppress economic activity." This is roughly consistent with his remarks last week.

Powell pointed out that the impact of tariffs on inflation may be short-lived or more lasting.

Powell said avoiding a sustained upward trend in inflation "will depend on the size of the tariff impact, how long it takes for those impacts to be fully transmitted to prices, and ultimately whether long-term inflation expectations can be kept stable."

Economic data so far show that the impact of tariffs is limited. Both Federal Reserve Governors Christopher Waller and Michelle Bowman have mentioned this and believe that the Fed may cut interest rates as early as the next meeting in July.

At the same time, Powell said that the overall US economy and job market remain solid. He said that inflation has fallen significantly from its high in mid-2022, but it is still slightly above the Fed's 2% target. He added that most long-term inflation expectations indicators remain consistent with the Fed's target beyond the next year or so.

U.S. short-term interest rate futures fell slightly after Powell's testimony, and traders believe that the Fed is less likely to cut interest rates early.