Were it not for tariffs, the Federal Reserve would have already cut interest rates in 2025, chair Jerome Powell said on Tuesday at a conference of central bankers.
During an onstage interview at the European Central Bank Forum alongside the central bankers from England, Korea, Japan, and the European Union, Powell was asked if the uncertainty caused by the White House’s ongoing tariff regime had led the Fed to hold off on cutting interest rates. He responded: “I do think that.”
Since then the Fed sat pat on making any decisions about interest rates. “We went on hold when we when we saw the size of the tariffs and where, and essentially all, all inflation forecasts for the United States went up materially as a consequence of the tariffs,” Powell said. “So we didn’t overreact it. In fact, we didn’t react at all.”
The Fed had closed 2024 with a series of interest rate cuts. However, it had paused that rate cutting cycle at the start of this year. Since then at each FOMC meeting, Powell has reiterated the view that with the economic outlook so uncertain the Fed would wait to see what happened before lowering rates. The rampant uncertainty, which affected all market participants, not just the Fed, started when President Donald Trump announced his widespread and harsh tariff policy in early April. The new policy led to a stock market crash, caused bond yields to soar, and saw the dollar weaken. It also forced businesses into a holding pattern for any future investment plans, which risked exacerbating a recession.
“We think the prudent thing to do is to wait and learn more and see what those effects might be,” Powell said. “And again, they haven’t really shown up. So for now—we’re waiting.”
Powell’s comments point to a certain irony in the current situation of the U.S. economy. The pause in interest rate cuts was due to the heightened levels of uncertainty stemming from Trump’s tariff policy. At the same time, Trump is furious with Powell for not lowering interest rates. On Monday, the President renewed his attacks on Powell posting a picture of a handwritten note that accused him of taking too long to lower rates. At the ECB Forum, Powell again declined to answer any questions about Trump’s comments, his typical response whenever asked.
