The Federal Reserve is demonstrating fiscal fortitude, with Chair Jerome Powell holding interest rates amidst a political onslaught from Donald Trump. Powell insists the central bank needs to assess the full impact of tariffs on US prices before adjusting its monetary policy, even as Trump continues to criticize the Fed’s independence.
Trump’s latest social media broadside against Powell characterized him as “very dumb” and accused the Fed of “incompetence” for not cutting rates since December. The former president alleged that this inaction, which he partly linked to the instability of his own past economic policies, would be detrimental to the US economy for years to come. Powell, however, remains focused on the Fed’s mandate to maintain price stability.
Appearing before the US House of Representatives financial services committee, Powell acknowledged that Trump’s tariffs would “likely” elevate prices, posing a challenge to the Fed’s long-term inflation control objectives. He highlighted the unpredictable nature of the administration’s policy changes, noting that their economic effects are still evolving. The Fed chair indicated that predictions about tariff levels and their associated economic consequences reached their highest point in April and have subsequently declined.
Powell emphasized the importance of the central bank’s commitment to “keep longer-term inflation expectations well anchored.” He stated that the Fed is in a strong position to observe and learn more about the economic trajectory before considering any modifications to its current policy stance. The Fed’s recent meeting saw rates remain unchanged, with officials hinting at potential future cuts while raising inflation forecasts.