Federal Reserve Chairman Defies Trump’s Calls for Interest Rate Cuts
The Federal Reserve will wait to see how the economy evolves before deciding whether to reduce its key interest rate, said Chairman Jerome Powell on Tuesday. This stance directly opposes President Donald Trump’s demands for immediate cuts. Powell’s testimony before the House Financial Services Committee emphasized the importance of carefully monitoring the economy’s progress.
Powell’s Testimony and Possible Rate Cuts
Powell is scheduled to testify before a Senate committee, where he will likely face more questions about the potential rate cuts. Several Republicans have pushed for the Fed to reduce borrowing costs, but Powell remains cautious. The Fed’s committee voted unanimously to keep its key rate unchanged, although forecasts suggest emerging divisions among policymakers. Seven projected no rate cuts at all this year, two just one, while 10 forecast at least two reductions.
The Impact of Tariffs on Inflation
Powell emphasized that tariffs might push inflation higher, and the Fed wants to see what happens over the next couple of months before making any changes. The central bank expects tariff inflation to emerge in the next few months, starting in June, and the June inflation report will be released on July 15. However, under questioning, Powell acknowledged that tariffs might not push up inflation as much as economists forecast, which could lead the Fed to reduce rates more quickly.
Trump’s Reaction to the Fed’s Decision
President Trump lashed out at Powell, posting on his social media site that he hopes Congress will work to replace the Fed chair. Trump has repeatedly urged the Fed to cut rates to save the U.S. government money on interest payments. However, the Fed has long resisted considering the government’s financing costs when making interest rate decisions, focusing instead on the health of the economy and inflation.
The Fed’s Dual Mission
The Fed’s dual mission is to control inflation and support maximum employment. Powell has often cited his support in Congress as a bulwark against Trump’s attacks. Members of both parties have thanked Powell for maintaining his focus on the Fed’s mission. The Fed chair said that the central bank’s "obligation" is to prevent a one-time increase in the price level from becoming an ongoing inflation problem.
Conclusion
In conclusion, the Federal Reserve will continue to wait and see how the economy evolves before deciding whether to reduce its key interest rate. Despite President Trump’s demands for immediate cuts, Powell remains cautious, emphasizing the importance of carefully monitoring the economy’s progress. The Fed’s dual mission is to control inflation and support maximum employment, and the central bank will make decisions based on the health of the economy, not the government’s financing costs. As the economy continues to evolve, the Fed will be closely watching for any signs of inflation or changes in the labor market, and will make adjustments to its policy stance accordingly.
