Jerome Powell: "We must wait to cut rates until tariff effects are clear"

"The impact of tariffs depends on the final tariff level"

Holds firm on policy approach regarding tariff impacts despite Trump threats

Jerome Powell, Chairman of the Federal Reserve Board, emphasized to members of the U.S. Congress on the 24th (local time), "While waiting for the effects of tariffs on the economy to become clear, we will not rush to cut rates."

Attending a hearing before the House Financial Services Committee on the 24th, Powell said in his speech, "The effects of tariffs depend on the final tariff level." He stressed, "For now, the Fed is in a good position to wait and see future prospects before considering any adjustment to policy direction."

Powell’s testimony before the House Financial Services Committee followed last week's decision by the Federal Reserve to keep the benchmark interest rate at 4.25%~4.5%. This angered President Trump, who criticized the Fed for keeping the U.S. government’s borrowing costs high.

That morning, Trump also wrote on social media, "I hope Congress can properly manage this stubborn and foolish man."

Powell and other policymakers have argued that frequent changes in tariff policy by the Trump administration have increased economic uncertainty, and that interest rates should be kept on hold for the time being. Economists expect tariffs to drive up inflation and hinder economic growth, but as reciprocal tariffs have currently been suspended, the final tariff level remains unclear.

President Trump has frequently changed tariff policy and is now pursuing trade agreements with major trading partners that could alter future tariff levels.

Powell said that the effects of tariffs on inflation could be short-term or more lasting. He noted that the avoidance of sustained tariff impacts "depends on the magnitude of the tariff effect, the time it takes for prices to fully reflect those effects, and ultimately on how well long-term inflation expectations are anchored."

In a statement, Powell said, "Expectations regarding tariff levels and their resulting economic effects have shown a decline after peaking in April," echoing his remarks right after last week’s Federal Open Market Committee (FOMC) meeting. Recently released economic data indicate the impact of tariffs has so far been limited.

Meanwhile, Powell assessed that the overall economy and labor market remain strong. He said inflation has eased considerably from its peak in mid-2022, but remains somewhat above the Fed’s target of 2%.

Kim Jung-ah, Guest Reporter kja@hankyung.com