Federal Reserve Chair Jerome Powell faced lawmakers on Tuesday with a message shaped by caution and uncertainty. According to Powell, recent economic data might have justified further interest rate cuts, if not for the looming threat of higher tariffs—a risk that could undermine the central bank’s long-running campaign to tame inflation. Speaking before the House Financial Services Committee, Powell offered little indication that a rate cut was imminent, but he stopped short of ruling one out entirely. Instead, his responses suggested that the Federal Reserve is likely to wait until at least its September meeting to see whether tariff-driven price increases prove less severe than anticipated before moving forward with any rate reductions.
“If it turns out that inflation pressures do remain contained, we will get to a place where we cut rates sooner rather than later, but I wouldn’t want to point to a particular meeting,” Powell told lawmakers, underscoring the central bank’s wait-and-see approach, according to his remarks at the hearing.
Behind the scenes, there are signs of subtle tension among Federal Reserve officials. The central bank’s longstanding “hold the line” stance—waiting longer before cutting rates—has recently shown signs of softening, at least slightly. This shift, though gentle, hints at internal debates over how best to balance the Fed’s dual mandates: maximum sustainable employment and stable prices.
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On Monday, Vice Chair for Supervision Michelle Bowman addressed an international research conference, emphasizing that there is no “preset course” for monetary policy. “I would support lowering the policy rate as soon as our next meeting in order to bring it closer to its neutral setting and to sustain a healthy labor market,” Bowman said, adding that she will continue to monitor economic conditions as administration policies and financial markets evolve.
The desire for lower interest rates to support employment is complicated by mixed signals from the labor market, which has sent confusing messages for months. In a speech on June 1, Federal Reserve Governor Christopher Waller described modeling inflation under different tariff scenarios. If companies passed on all tariff costs to consumers, the Fed’s preferred inflation gauge—the personal consumption expenditures (PCE) price index—could spike to 5% annualized, or perhaps 4% if businesses absorbed some of the costs. Unemployment, Waller projected, might climb from its current 4.2% to 5%. In a scenario with smaller tariffs, inflation might rise to 3% before receding, with economic growth slowing and unemployment rising, but likely not as high as 5%. Waller ultimately saw a middle ground as most likely, with unemployment rising and lingering, and tariffs becoming the largest, though not persistent, driver of inflation—without major supply chain disruptions, according to his analysis.
Chicago Fed President Austan Goolsbee, speaking Monday as reported by CNN, noted that if inflation driven by tariffs fails to materialize—and so far, there is no sign it has—the Fed could move to lower short-term rates.
For now, Federal Reserve officials appear to be grappling with uncertainty and a lack of clear direction in the data. While a rate cut in July remains a possibility, it is just as likely that the central bank will wait until at least September. As the economic outlook remains cloudy, policymakers continue to look for more definitive signals before making their next move.
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