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Federal Reserve chair Jay Powell has indicated that he will resist calls for interest rate cuts as early as July, citing the stable nature of the US economy and the uncertain impact of President Donald Trump’s trade policies and other changes.
Two members of the Fed’s board, Chris Waller and Michelle Bowman, have expressed support for a rate cut at the upcoming July vote, noting that recent inflation data suggests that the impact of Trump’s tariffs on prices may be less significant than initially feared.
Although Powell is expected to acknowledge a less dramatic effect of Trump’s tariffs in his testimony on Tuesday, he will caution that tariff increases could lead to higher prices and hinder economic activity.
Despite facing criticism from President Trump for maintaining interest rates, Powell is expected to emphasize the need to assess the outcomes of the trade war before considering further rate cuts.
In his prepared remarks, Powell will highlight the possibility of short-lived or persistent inflationary effects resulting from the president’s policies.
Despite the ongoing uncertainties, Powell maintains confidence in the strength of the US economy, suggesting that current interest rates are appropriate without negatively impacting the labor market.
He will point out that the unemployment rate is low and the labor market is close to full employment during his testimony before the House of Representatives’ financial services committee.
With the Fed’s benchmark target range still in restrictive territory, Fed officials are divided on the future of borrowing costs by the end of 2025.
While some officials advocate for rate cuts in July, others believe that rates should remain unchanged throughout the year. The varying opinions indicate a complex outlook for monetary policy decisions in the coming years.