Federal Reserve chair Jay Powell has signalled he would push back on calls for interest rate cuts as soon as July, saying the US economy remains “solid” and the effects of US President Donald Trump’s trade war and other policy changes are “uncertain”.
Two members of the Fed’s board – Chris Waller and Michelle Bowman – have said in recent days that they would support a cut at the Fed’s next rate-setting vote in July, saying recent inflation readings suggested that Trump’s tariffs would have less impact on prices than feared.
While Mr Powell on Tuesday is set to acknowledge that the impact of Trump’s tariffs is now expected to be less dramatic than predicted in April, he will tell Congress that “increases in tariffs this year are likely to push up prices and weigh on economic activity”.
Hours ahead of Mr Powell’s testimony, Mr Trump posted on his Truth Social network: “I hope Congress really works this very dumb, hardheaded person, over. We will be paying for his incompetence for many years to come.”
Mr Powell, whose term as Fed chair ends in May 2026, has been under fire from the US president over the Federal Open Market Committee’s (FOMC) decision to keep interest rates on hold. Trump has called for a cut in benchmark borrowing costs of “at least” two to three percentage points.
The Fed lowered borrowing costs by 1 percentage point last year, but most officials on the FOMC say they want to wait and see how the impact of the trade war plays out before cutting rates again.
[ Federal Reserve holds rates steady as it warns of rising economic risksOpens in new window ]
In prepared remarks, the Fed chair will say that while the inflationary impact of the US president’s policies “could be short lived”, it was “also possible that the inflationary effects could instead be more persistent”.
The US economy, meanwhile, remains “in a solid position”, signalling that Mr Powell believes interest rates can remain where they are for now, without unduly damaging America’s labour market.
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“The unemployment rate remains low, and the labour market is at or near maximum employment,” Mr Powell will tell the House of Representatives’ financial services committee later on Tuesday.
At 4.25 to 4.5 per cent, the Fed’s benchmark target range remains in restrictive territory – above a neutral level that neither limits nor spurs growth.
[ Fed holds rates unchanged as Donald Trump calls chairman Jerome Powell ‘stupid’Opens in new window ]
Fed officials are increasingly split on where borrowing costs will end up by the end of 2025.
While both Mr Waller and Ms Bowman want cuts as soon as July, seven officials do not think interest rates will move at all this year.
Ten members support two or more quarter-point cuts, with the remaining two backing one cut.
Beth Hammack, president of the Cleveland Fed, who sits on the rate-setting Federal Open Market Committee but does not have a vote this year, signalled on Tuesday that she supported Mr Powell’s “wait and see” approach to cutting borrowing costs.
“The ultimate extent and size of the tariffs are uncertain, but current information indicates that the average tariff rate will be the highest it’s been in nearly a century,” Ms Hammack said in London.
“It will take some time for their overall economic effects to become clearer in the hard data.” - Copyright The Financial Times Limited 2025
