Central bank chair says Trump demands for lower rates had 'no effect' on latest decision
Federal Reserve chair Jerome Powell has sounded another warning on the potential economic impact of the Trump administration’s trade war, with the central bank now saying the risks of higher unemployment and inflation have risen because of tariffs.
Powell, speaking after the Fed left its benchmark rate unchanged Wednesday, told a news conference that the decision was made with that growing threat to the economy in mind.
But the Fed chief, who faced the president’s wrath in a Truth Social broadside last month after appearing to rule out a rate cut, also moved to assure markets that central bank remains well equipped to manage any turbulence.
“The risks of higher unemployment and higher inflation appear to have risen, and we believe that the current stance of monetary policy leaves us well positioned to respond in a timely way to potential economic development,” he said.
Treasury yields ticked downward in the wake of the announcement, nudging mortgage rates lower, as Powell also highlighted the unpredictability of the administration’s approach to tariffs and foreign trade.
“If the large increase in tariffs that have been announced are sustained, they are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment,” he said.
“The effects on inflation could be short-lived, reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent.”
LIVE NOW: Press conference with #FOMC Chair Powell: https://t.co/1uJrua5qsH and https://t.co/FJa6TbkDMt
— Federal Reserve (@federalreserve) May 7, 2025
Powell: Trump demands won’t change Fed approach
Trump has yet to respond to the Fed’s decision, although he’s frequently slammed its approach as “TOO LATE” on rate cuts and demanded it bring borrowing costs lower.
Powell dismissed the idea that the president’s pressure would impact the Fed’s thinking looking ahead. “We are always going to do the same thing, which is… use our tools to foster maximum employment and price stability for the benefit of the American people,” he said Wednesday.
“We are always going to consider only the economic data, the outlook, the balance of risks and that’s it. That’s all we are going to consider.”
While the president seems unlikely to abandon his call for cuts, the Fed still looks set to keep rates unchanged at its next meeting, particularly after a surprisingly solid jobs report last week, according to Goldman Sachs Asset Management chief investment officer of public investing Ashish Shah.
“The onus is on the labor market to weaken sufficiently to bring a resumption of its easing cycle,” Shah said. “Any weakening in the labor market, however, could take a number of months to become apparent and we see the odds skewed towards another ‘hold’ at next month’s meeting.”
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