Jerome H. Powell, chair of the Federal Reserve, said central bank officials could afford to be patient before cutting interest rates as they wait to see how President Trump’s policies, including tariffs, affect inflation and the labor market.
In remarks prepared for delivery to the Senate on Tuesday morning, Mr. Powell said that the Fed was in no rush to lower borrowing costs given the labor market remains solid and inflation remains “somewhat elevated.”
“Policy changes continue to evolve, and their effects on the economy remain uncertain,” Mr. Powell said in his prepared remarks. “The effects of tariffs will depend, among other things, on their ultimate level. Expectations of that level, and thus of the related economic effects, reached a peak in April and have since declined.
“Even so,” he said, “increases in tariffs this year are likely to push up prices and weigh on economic activity.”
He added that “for the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”
In April, Mr. Trump announced sweeping tariffs on nearly all trading partners but suspended those almost immediately to quell a global market meltdown. Although the United States is working to reach trade agreements that could forestall some of the tariffs indefinitely, the president has not wavered in his plan to impose the levies on July 9 if such deals are not reached. Many economists expect companies to pass the added costs on to their customers.
With the labor market holding up relatively well and inflation still above the central bank’s 2 percent target, the Fed has argued that it can afford to be patient until it has more clarity about how significantly growth may slow and price pressures may flare up again.
That approach was reiterated last week when the Fed voted to hold rates steady for a fourth straight meeting. But notable fissures between officials at the central bank have begun to emerge at a moment when Mr. Trump has stepped up a pressure campaign on Mr. Powell to slash borrowing costs immediately and by a significant amount.
In recent days, the president revived his threat of firing Mr. Powell, whom he has repeatedly attacked since returning to the White House. Mr. Trump has called for the Fed to cut rates by as much as 2.5 percentage points and referred to Mr. Powell as a “moron,” a “dummy” and a “numbskull.” The Fed’s benchmark interest rate is set in a range of 4.25 to 4.5 percent.
No current Fed official has indicated support for a reduction in interest rates as drastic as Mr. Trump has called for, but two Trump-appointed Fed officials have tentatively backed a rate cut in July.
Governor Christopher J. Waller and Michelle W. Bowman, who was just confirmed to lead regulatory issues at the central bank, said in recent days that Mr. Trump’s tariffs were having a muted affect on inflation and that subsequent price pressures were likely to be temporary.
Both Mr. Waller, who is seen as a potential contender to succeed Mr. Powell as chair, and Ms. Bowman, who is the vice chair for supervision, supported the Fed’s decision last week to keep interest rates steady. But they have splintered from other policymakers at the Fed, who have suggested less urgency to cut. Both Mr. Waller and Ms. Bowman have indicated that they could support a rate cut in July if the economy remains solid.
Mr. Powell signaled on Tuesday that it was still too early to know how Mr. Trump’s tariffs would ultimately affect prices.
“The effects on inflation could be short-lived — reflecting a one-time shift in the price level,” he said. “It is also possible that the inflationary effects could instead be more persistent. Avoiding that outcome will depend on the size of the tariff effects, on how long it takes for them to pass through fully into prices, and, ultimately, on keeping longer-term inflation expectations well anchored.”
According to projections released alongside the most recent policy decision, many officials appear less inclined to lower interest rates this year than just three months ago. Most officials stuck to earlier forecasts for half a percentage point’s worth of cuts this year, but nine of the 19 policymakers penciled in less. Seven forecast no reductions, and two predicted just one quarter-point move. Most also saw less scope to reduce interest rates next year.
During a news conference after the June meeting, Mr. Powell stressed the uncertainty underpinning the most recent forecasts, which do not represent a preset plan but just reflect individual estimates.
“No one holds these rate paths with a lot of conviction,” he said at the time.
The Fed strives to operate independently of the White House, as mandated by Congress. That is to ensure that its officials can make policy decisions related to the economy and the banking system free from political interference. The Supreme Court recently signaled that the president had limited ability to fire the Fed chair, in recognition of its special status among the independent agencies.
But Mr. Trump has taken other steps to erode that independence beyond threatening Mr. Powell.
In February, the president signed an executive order that called on independent regulatory agencies, including the Fed, to submit proposed rule changes to the White House for review and give the Office of Management and Budget oversight of how funds are earmarked and priorities set.
Ms. Bowman is set to ease a number of rules for banks, including leverage requirements on larger banks. So far, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency have submitted a proposal to the O.M.B.’s Office of Information and Regulatory Affairs regarding changes to the so-called Supplementary Leverage Ratio, in apparent compliance with the executive order. The Fed has not done so.
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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