Interest Rates Would Be Low If Not For Tariffs, Says Powell
Jerome Powell insists that the U.S. central bank would likely have eased interest rates this year if not for President Donald Trump’s tariff strategy. After speaking at the European Central Bank forum in Sintra, Portugal, Powell stated that the Fed “went on hold” due to the inflationary pressure stemming from the size and scope of the tariffs.
Tariffs Reshape Monetary Outlook
Powell’s remarks offer rare transparency on how fiscal decisions from the executive branch can shift monetary policy. The tariffs, introduced earlier in the year and then partially delayed, led to a significant rise in inflation forecasts. As a result, the Fed paused potential rate cuts despite a slowdown in economic momentum and pressure from financial markets.
The Federal Open Market Committee (FOMC) has kept the federal funds rate steady between 4.25% and 4.5% since December.
Although projections suggest two rate cuts may occur by the end of 2025, Powell emphasized that the Fed remains in a “meeting-by-meeting” stance. When asked whether a July cut was under consideration, Powell declined to give a definitive answer, saying the decision would depend entirely on incoming data.
White House Friction Intensifies
This cautious posture has sparked frustration from Trump and his allies, who argue that maintaining high borrowing costs suppresses economic growth. Last week, Trump sharply criticized Powell, labeling him “terrible” and questioning his competence. The president has long accused the Fed of acting too slowly in lowering interest rates during his administration.
Powell did not comment on whether he intends to remain in his position after his term as chair ends in 2026. His current term as a Fed governor extends through 2028. The lack of clarity on Powell’s future adds a layer of uncertainty for global financial markets, which are already contending with the ripple effects of U.S. trade policy.
Global Uncertainty Persists
The ongoing instability surrounding Trump’s tariff policies has introduced volatility across global markets. While the S&P 500 recently reached new record highs, the uncertainty continues to weigh on investor sentiment and policy decisions. During the panel, Powell reiterated the Fed’s goal of delivering price stability, full employment, and financial stability, underscoring the delicate balance central banks must maintain amid unpredictable fiscal actions.
