Fed continues to resist Trump administration’s pressure for an early interest rate reduction
As political scrutiny of the Federal Reserve intensifies, Chair Jerome H. Powell on Tuesday defended the central bank’s cautious approach to interest rate policy, telling lawmakers that officials can afford to wait before making any move to ease borrowing costs.
In testimony before the House Financial Services Committee, Mr. Powell reiterated that the Federal Reserve is closely monitoring the economic impact of President Donald J. Trump’s sweeping tariff announcements earlier this year. With economic activity remaining “solid” and inflation easing but still elevated, the Fed, he said, is “well positioned” to assess data before considering changes to its policy stance.
“For the time being,” Mr. Powell said in prepared remarks, “we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments.”
The appearance marked Mr. Powell’s first formal testimony since Mr. Trump intensified his calls for rapid and aggressive rate cuts. The president, who returned to the White House in January, has lambasted Mr. Powell in recent days, referring to him in a social media post as a “total and complete moron” and suggesting that the Fed is undermining economic growth by keeping interest rates too high.
Despite this rhetoric, Mr. Powell and a majority of Fed policymakers have maintained that the U.S. economy, while not without risks, does not currently warrant a rate reduction. The central bank’s benchmark interest rate has remained unchanged in the 4.25% to 4.5% range since late last year.
Mr. Powell’s testimony follows the Fed’s decision last week to leave interest rates unchanged for a fourth consecutive meeting. But divisions within the central bank are beginning to emerge.
Two Trump-appointed governors, Christopher J. Waller and Michelle W. Bowman, have signaled support for a rate cut as early as the July meeting. Both officials argue that the recent increase in tariffs may cause only a modest, short-term bump in inflation and should not deter monetary easing. Mr. Waller is widely seen as a contender to succeed Mr. Powell, whose term ends in 2026.
Other Fed officials, however, have urged greater caution. They warn that businesses facing higher input costs from tariffs may pass those on to consumers, potentially reigniting inflation at a time when the Fed is still working to anchor price expectations near its 2% target.
“The effects on inflation could be short-lived — reflecting a one-time shift in the price level,” Mr. Powell told lawmakers. “It is also possible that the inflationary effects could instead be more persistent.”
He noted that the trajectory of prices would depend on the scope and duration of the tariffs, how quickly costs are passed through supply chains, and whether expectations of future inflation remain stable.
Mr. Powell’s appearance before Congress also served as a high-profile test of the Fed’s political independence. Though the central bank operates independently of the White House, Mr. Trump has taken several steps to exert influence. Earlier this year, he signed an executive order seeking greater White House oversight of regulatory agencies, including the Fed.
The Supreme Court has previously indicated that the president has limited authority to remove a sitting Fed chair, but Mr. Trump’s recent threats to oust Mr. Powell have reignited concerns over the politicization of monetary policy.
Mr. Powell, who has long emphasized the Fed’s institutional autonomy, did not respond directly to the president’s attacks. Instead, he maintained a focus on the central bank’s dual mandate to promote stable prices and maximum employment, stressing that current conditions do not call for immediate action.
The Fed’s latest economic projections underscore this divide. Ten officials penciled in at least two rate cuts by the end of the year, while seven expected none. Two forecast a single quarter-point reduction.
Markets and policymakers will have another round of inflation and labor market data before the Fed’s next meeting at the end of July. Whether the data point to cooling price pressures or softening job growth could shape the outcome.
For now, Mr. Powell is holding the line.
“We are watching carefully,” he said, “and we will respond as appropriate.”
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
