Fed Chair Powell Holds Firm: Patience Needed Before Rate Cuts
Federal Reserve Chair Jerome Powell reiterated the central bank’s cautious “wait-and-see” approach to lowering interest rates during recent testimony before the House Financial Services Committee on June 24, 2025. Powell emphasized that the Fed is in no hurry to adjust its policy stance, citing a solid labor market, persistent inflation, and significant uncertainty surrounding the potential economic impact of President Donald Trump’s tariff policies.
This message echoes the sentiment from the Fed’s previous meeting, where the benchmark interest rate was held steady for the fourth consecutive time, remaining in the range of 4.25% to 4.5%.
Why the Wait? Tariffs Take Center Stage
A key factor underpinning the Fed’s current patience is the potential effect of tariffs. Powell explained that while recent inflation has been relatively modest, the possibility of new or increased tariffs from the Trump administration risks pushing prices higher later in the year.
“For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance,” Powell stated, describing the approach as “prudent and careful.” He stressed that the Fed needs greater clarity on the final tariff policy and its expected pass-through to consumer prices before committing to lowering borrowing costs.
Powell noted that increases in tariffs this year are “likely to push up prices and weigh on economic activity,” expecting the impact to become more pronounced over the summer, potentially showing up in the June and July inflation data. While acknowledging that the inflationary effects could be short-lived, reflecting a one-time price level shift, he also warned that they could become more persistent depending on their size, speed of transmission, and the ability to keep longer-term inflation expectations anchored. He clarified that the Fed’s focus is on managing the inflationary impact of such policies, not endorsing or criticizing the trade policy itself.
Navigating Internal Divisions and Political Pressure
Powell’s stance comes amid notable fissures within the Federal Reserve itself and intense political pressure from President Trump. The President has repeatedly attacked Powell and called for drastic interest rate cuts, reportedly advocating for reductions as large as 2 to 2.5 percentage points.
While no Fed official publicly supports cuts of that magnitude, divisions regarding the timing of potential easing have emerged. Some officials, notably Trump appointees Governor Christopher J. Waller and Michelle W. Bowman, have expressed openness to a rate cut as early as July. Their perspective appears to differ on the tariff impact, viewing it as potentially more muted or temporary than some of their colleagues. However, both Waller and Bowman supported the decision to hold rates steady at the most recent meeting.
In contrast, other policymakers, like Cleveland Fed President Beth Hammack and Atlanta Fed President Raphael Bostic, have recently suggested less urgency, backing an extended pause or minimal cuts this year, citing concerns about inflation intensifying.
Outlook: Patience is Key, But Paths Vary
Despite the differing views, Powell maintained that the Fed does not need to be in a rush given the economy’s continued strength. He acknowledged that “many paths are possible” for interest rates, including the option to cut sooner if inflation pressures remain contained or if the labor market shows unexpected weakness – neither of which he currently observes.
When pressed on the possibility of a July rate cut, Powell demurred, stating he wouldn’t point to a specific meeting. He reiterated that if inflation remains subdued, cuts would come “sooner rather than later,” but emphasized the value of patience in the face of uncertainty, particularly surrounding the tariffs.
Recent economic projections from Fed officials released alongside the last policy decision indicated a less aggressive cutting path this year compared to previous forecasts, with several policymakers anticipating fewer than two quarter-point cuts or even no cuts at all. However, Powell stressed that these forecasts are individual estimates and not set plans, underscoring the high degree of uncertainty influencing policy decisions.
Markets responded to Powell’s testimony by adjusting their expectations, reportedly paring back bets for a July rate cut and increasing the perceived likelihood of a reduction occurring later, potentially in September. The focus remains squarely on incoming economic data and clarity regarding the final impact of trade policies.
The Federal Reserve strives to operate independently of political influence, a principle highlighted by its mandate and recent legal interpretations. However, the backdrop of external pressure adds a layer of complexity as the central bank navigates the economic landscape, with the effects of tariffs now a critical variable dictating the potential timing of future monetary policy shifts.
