Paolo Confino
4 min read
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The Federal Reserve is not cutting interest rates yet because there is a possible inflation spike on the horizon. Until the central bank can see exactly how it will play out, interest rates will remain where they are, chair Jerome Powell said. Just hours before Powell’s comments, President Donald Trump again berated his decision to hold steady on interest rates.
The Federal Reserve has not yet cut interest rates because economic forecasts predict a “meaningful increase in inflation over the course of this year,” chair Jerome Powell said during a congressional hearing on Tuesday.
So far this year the Fed has not touched interest rates, keeping its target rate at its current level of between 4.25% and 4.5%, where it has been since July 2023.
The decision to hold off on rate cuts earned Powell the ire of President Donald Trump. Since retaking office, Trump often demanded Powell lower interest rates. In a social media post on Tuesday, ahead of Powell’s congressional testimony, Trump said he believed interest rates should be “two to three points lower” than their current levels.
“I hope Congress really works this very dumb, hardheaded person, over,” Trump wrote. “We will be paying for his incompetence for many years to come.”
During Powell’s testimony before the House Financial Services Committee Tuesday, members of Congress—mostly Democrats—repeatedly asked the Fed chair for his view of Trump’s remarks and policies, in particular on trade and immigration. Powell declined to comment each time, saying it was “inappropriate” for the central bank to comment on elected officials’ policy decisions.
Powell has reiterated the Fed wants to wait to make a rate cut until the future of the economy becomes clearer.
“Rates are going to depend on the path of the economy, and that’s highly uncertain,” Powell said.
Economic uncertainty rose across the board in the wake of Trump’s tariff policy, which upended global markets. Stock markets have mostly recovered from an abysmal April when they cratered on fears global trade would be disrupted. During this period of turmoil, Powell regularly pointed to the fact that underlying data, such as inflation and the unemployment rate, were strong. That, Powell argued, gave the Fed time to wait before making a decision.
The main question remains the “timing, amount, and persistence” of any inflation increases that might arise from Trump’s tariff policy, Powell said. The expectation is that tariffs will almost certainly cause a one-time spike in prices that then settles down. The fear is that doesn’t happen and prices remain high, or even continue to increase.
