Washington, D.C. — U.S. Federal Reserve Chair Jerome Powell indicated that the central bank’s current stance on interest rates has been heavily influenced by President Donald Trump’s tariff strategy. Speaking at a European Central Bank forum in Sintra, Portugal, Powell acknowledged that had it not been for the president’s controversial plan to impose higher tariffs on imported goods, the Fed might have already reduced interest rates this year.
When questioned about the potential for an interest rate cut had the tariffs not been enacted, Powell responded affirmatively. He revealed that the introduction of tariffs had a significant impact on inflation forecasts, leading the Fed to adopt a cautious approach. The central bank has kept its benchmark borrowing rate steady at between 4.25% and 4.5%, a range it has maintained since December.
Despite the pressures from the White House to lower borrowing costs, the Fed’s policy-setting Federal Open Market Committee suggested there could be two rate cuts by the end of 2025. However, Powell emphasized the need for careful evaluation of forthcoming economic data. “We are going meeting by meeting,” he said, asserting that any decisions would be data-driven.
During the panel discussion, Powell expressed uncertainty regarding whether a rate cut would occur at the upcoming July meeting. Currently, Fed funds futures traders project a more than 76% probability that rates will remain unchanged. This reflects the cautious sentiment among investors regarding future economic conditions.
Powell’s tenure has not been without criticism. The Fed’s sustained decision to hold rates steady has drawn ire from Trump, who has publicly criticized Powell for his perceived inaction. Just last week, Trump described the Fed chair as “terrible” and questioned his mental acuity.
When asked about his future with the Fed after his term as chair concludes next year, Powell remained tight-lipped. His current term as chair lasts until 2026, but his role as a governor extends to 2028.
The fluctuating nature of U.S. trade policy was a focal point of the event, with international central bank leaders voicing concerns about the ramifications of Trump’s tariff announcements. The president’s initial introduction of steep tariffs in April created immediate market volatility, leading to revisions and delays in implementation shortly thereafter.
While the U.S. stock market has notably rebounded, with the S&P 500 hitting record highs recently, uncertainty persists regarding the long-term implications of trade policy on economic growth and corporate profits.
In reflecting on the Federal Reserve’s mission, Powell expressed a commitment to achieving price stability and financial health for future generations. “What keeps me awake at night is: How do we get that done? I want to leave an economy in good shape for my successor,” he concluded, underscoring the challenges faced by the central bank amid shifting political and economic landscapes.