According to Jerome Powell, the chair of the Federal Reserve, if it weren’t for the inflationary consequences of former President Donald Trump’s tariff policy, the central bank would probably have lowered interest rates this year.
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Trump’s Tariffs Delayed Rate Cuts
Powell was questioned at the annual symposium of the European Central Bank in Sintra, Portugal, if Trump hadn’t imposed higher import duties, if the Fed would have cut rates this year. A CNBC article states that Powell’s response was, “I think that’s right.”
After assessing the size of the levies, he clarified, the Fed essentially put the economy on hold. “The tariffs resulted in a material increase in all inflation forecasts for the United States,” he stated.
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Fed Holds Steady Amid Uncertainty
Powell’s remarks coincide with the Fed maintaining its key interest rate, which has been in the range of 4.25 to 4.5% since December. The Fed is still cautious despite mounting pressure from the White House to lower rates.
Powell said, “I really can’t say,” in response to a question about the likelihood of a rate cut in July, stressing that any decision will be based on incoming economic data. He went on to say, “We are going meeting by meeting.” “I wouldn’t put a meeting on the table or take it off of it.”
Commitment to Economic Stability
Powell emphasised the Fed’s commitment to its three key goals: preserving financial stability, promoting maximum employment, and upholding price stability. “How do we get that done?” he asked, “that’s what keeps me up at night.” “I want to leave a healthy economy for my successor.”
Market Expectations and Political Tension
The Fed’s cautious approach seems to be supported by the markets. Over 76% of traders believe that rates will not change at the Fed’s July policy meeting, according to the CME FedWatch tool.
Meanwhile, Powell has been the target of Trump’s ongoing criticism over the Fed’s lack of action on interest rates. He blasted Powell for not doing more to lower borrowing costs last week, calling the Fed chair “a very average mentally person” and “terrible.”