The Blubber

Federal Reserve Chair Jerome Powell told Congress on Tuesday that higher tariffs could begin raising inflation this summer, a crucial time as the central bank considers potential interest rate cuts.

Pressed by Republican lawmakers on the House Financial Services Committee about why the Fed isn’t cutting rates—as former President Donald Trump has urged—Powell emphasized that he and many at the Fed expect inflation to start rising soon, and that the central bank was in no hurry to lower borrowing costs in the meantime.

Powell made clear he would not open the door to a rate cut at the Fed’s July meeting, despite suggestions from two fellow policymakers, nor at any other meeting unless necessary.

“I do not want to point to a particular meeting. I don’t think we need to be in any rush,” he said, citing a strong labor market and continued uncertainty around the unresolved tariff debate.

Inflation Watch This Summer

Powell said the inflation impact from tariffs should begin to appear in upcoming reports:

“We should start to see this over the summer, in the June number and the July number... If we don’t, we are perfectly open to the idea that the pass-through [to consumers] will be less than we think. And if we do, that will matter for policy.”

He added:

“I think if it turns out that inflation pressures remain contained, we will get to a place where we cut rates sooner than later.”

Trade Policy Overshadows Fed Action

As the Fed remains largely on the sidelines, waiting for the outcome of the Trump administration’s trade negotiations, Powell was repeatedly asked why the central bank is so focused on tariffs rather than taking action now, given inflation has remained moderate.

Powell responded that Fed policy is not a judgment on the administration’s trade approach, but that it must respond to the economic effects:

“We aren’t commenting on tariffs. Our job is keeping inflation under control, and when policies have short- and medium-term, meaningful implications, then inflation becomes our job.”

Outlook and Market Reactions

In his prepared remarks, Powell reiterated that tariff-related price effects:

“could be short-lived, reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent... 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.”

After his testimony, investors dialed back expectations for a rate cut at the Fed’s July meeting, shifting bets toward a possible September rate reduction, with another cut likely by year’s end.

Powell’s remarks generally aligned with last week’s Fed policy statement, in which officials unanimously voted to keep the benchmark interest rate steady at 4.25% to 4.5% and gave no sign of imminent cuts. New projections showed that two quarter-point cuts are expected by year-end, in line with market forecasts.

Diverging Views Within the Fed

While two Trump-appointed Fed governors have recently said rates could be lowered as soon as July—given inflation hasn’t yet surged—three regional Fed presidents remain concerned inflation will intensify through the second half of the year.

Trump’s Pressure Continues

Trump, who appointed Powell during his first term but is expected to replace him when his tenure ends next spring, repeatedly calls for sharp rate cuts.

“We should be at least two to three points lower,” Trump wrote in a social media post before Powell’s appearance, adding he hoped “Congress really works this very dumb, hardheaded person, over.”