Powell Points to Tariffs as Key Factor Limiting Rate Cuts
Emphasizes Cautious Approach Amid Inflation Uncertainty
Trump’s Pressure and Fed Independence Addressed at ECB Forum
Jerome Powell, Chair of the U.S. Federal Reserve (Fed), stated on July 1 (local time) that the Fed would have lowered the benchmark interest rate further if it were not for President Donald Trump's tariff policies. In doing so, Powell directly pointed to President Trump?who has repeatedly pressured for rate cuts?as the very reason that rate reductions were constrained.
On this day, Powell participated as a panelist at the European Central Bank (ECB) Forum in Sintra, Portugal. When asked whether the Fed would have cut rates further without the tariff policies, he replied, "I think so."
He continued, "We took a pause after assessing the scale of the tariffs," explaining, "All inflation forecasts in the U.S. effectively increased as a result of the tariffs." This means that the tariffs heightened inflationary pressures, thereby limiting the Fed’s room for monetary easing.
Powell reaffirmed the need to maintain a cautious 'wait-and-see' approach, noting that while inflation is expected to rise due to tariffs, the situation remains highly uncertain.
He said, "We are monitoring the situation and expect higher inflation numbers over the summer," but added, "It could turn out higher or lower than expected, and the effects may appear later or sooner." He emphasized that monetary policymakers are prepared to take necessary actions once the impact becomes clear.
When asked about the prospects for a rate cut in July, Powell said, "It's really hard to say," avoiding a direct answer. However, he explained, "We will review each meeting as it comes and make decisions based on how the data unfolds."
Asked whether President Trump’s pressure for rate cuts has made it more difficult for him to perform his duties as Fed Chair, Powell responded, "I am focused solely on my job," stressing, "What matters is using the tools we have to achieve the goals assigned to us by Congress, and that is where our focus is 100%."
The Fed has maintained a steady rate hold throughout this year. At the Federal Open Market Committee (FOMC) regular meeting held on June 18, the benchmark interest rate was kept at 4.25-4.5% per annum. The Fed is scheduled to revisit the issue of rate adjustments at the FOMC meeting on July 29-30.
Meanwhile, President Trump told reporters aboard Air Force One en route from Florida to Washington, D.C., that he is considering two to three candidates as Powell's successor. Previously, on June 25, he mentioned that the shortlist for the next Fed Chair had been narrowed down to three to four people. Powell's term as Chair runs through May 2026, and his position as a Fed Governor is secured until 2028. However, he has not yet stated whether he will remain as a Governor after his term as Chair ends.
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