Powell Says Central Bank Paused Rate Cut Due to Trump’s Tariffs
(MENAFN) US Federal Reserve Chair Jerome Powell stated on Tuesday that the central bank would have reduced interest rates if not for the high tariffs introduced by President Donald Trump.
During a forum hosted by the European Central Bank in Portugal, Powell was asked if the Fed would have been more aggressive with rate cuts without the tariffs. He responded, “I think that's right.”
Powell explained that the Fed effectively paused its rate-cutting plans after observing the significant impact of the tariffs. He highlighted how inflation forecasts for the US surged as a direct result of the tariff measures. “In effect, we went on hold when we saw the size of the tariffs, and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs,” Powell remarked.
Despite the ongoing tariff effects, Powell emphasized that the US economy remains in a solid position overall. He noted that inflation has largely followed expectations, excluding the tariff impact.
He highlighted that the full impact of the tariffs has not yet been felt, adding that higher inflation is anticipated over the summer.
Regarding future policy decisions, Powell noted that the Fed is taking it meeting by meeting and would remain flexible. "I wouldn’t take any meeting off the table or put it directly on the table. It’s going to depend on how the data evolves,” he stated.
His comments came after the Fed's decision last month to maintain the federal funds rate within the range of 4.25% to 4.5%. In the statement accompanying the decision, the central bank acknowledged that while uncertainty about the economic outlook had decreased, it still remained elevated.
The Fed had previously held the rate at the elevated level of 5.5% from July 2023 until September 2024, before gradually lowering it to 4.5% in December 2024.
The decision to keep rates steady has sparked repeated criticism from Trump, who has called for rate cuts, pointing to the actions of European central banks. He has warned that delays in reducing rates could potentially harm the US economy.
In a particularly harsh statement last week, Trump called Powell "terrible" and an "average mentally person," and suggested he should resign. The former president has previously referred to Powell as "a fool," "a major loser," and a "numbskull."
In response to the criticism, Powell reiterated his primary goal: “All I want, and all anybody at the Fed wants, is to deliver an economy that has price stability, maximum employment, (and) financial stability.”
“What keeps me awake at night is: How do we get that done? I want to hand over to my successor an economy in good shape.”
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