Federal Reserve Chair Jerome Powell’s Testimony
Federal Reserve Chair Jerome Powell told lawmakers that the central bank can wait and see how President Donald Trump’s tariffs affect the economy before deciding to lower interest rates. In his testimony to the House Financial Services Committee, Powell said that the American economy is still strong, with a 4.2% unemployment rate and job gains averaging 124,000 per month.
The Current State of the Economy
Powell pointed to the low unemployment rate and job gains as evidence that the economy is doing well. He also noted that wage growth is outpacing inflation, and the labor market has reached maximum employment. However, he did suggest that Trump’s tariffs could have an impact on the economy, particularly on inflation.
The Impact of Tariffs on Inflation
Powell said that the effects of tariffs on inflation could be short-lived, but it’s also possible that they could be more persistent. He noted that many economists expect companies to pass on price increases to consumers once they’ve drawn down their current stockpiles. Powell kept the door open to either possibility, saying that the Fed will have to wait and see how the economy reacts to the tariffs.
Criticism from the White House
The White House has been critical of Powell and the Fed for not lowering interest rates. President Trump has argued that the benchmark interest rate should be lower, and has even suggested that it should be up to three percentage points lower. The current interest rate is set between 4.25% to 4.5%. The White House has pointed to four "expectation-beating" inflation reports in a row as evidence that the Fed should lower rates.
The Fed’s Decision-Making Process
Powell said that the Fed’s decision-making process is based on data, not politics. He noted that the Fed has to consider the potential impact of tariffs on the economy, and that it’s not just a simple matter of lowering interest rates. Other central banks have slashed interest rates to fortify their economies against Trump’s tariffs, but the Fed has sat tight since December.
Opinion from Other Fed Officials
Some Fed officials, such as Governors Michelle Bowman and Christopher Waller, have suggested that they would support a July interest rate cut if prices continue to hold steady. However, other officials, such as Atlanta Federal Reserve President Raphael Bostic, are not as convinced. Bostic told Reuters that he would expect to know enough to move on interest rates by the end of the quarter.
Conclusion
In conclusion, Federal Reserve Chair Jerome Powell’s testimony suggests that the Fed is taking a wait-and-see approach to interest rates. While the economy is currently strong, the impact of tariffs on inflation is still uncertain. The Fed will have to consider a range of factors before making a decision on interest rates. Despite criticism from the White House, the Fed remains committed to making decisions based on data, rather than politics. As the economy continues to evolve, it will be important to watch how the Fed responds to changing circumstances.
