Fed Chair Powell Caution Rate Cuts Amid 'Highly Uncertain' Path in Latest Report

What Happened?

Federal Reserve Chair Jerome Powell provided another grim outlook on future rate cuts during his address to the House Financial Services Committee on Tuesday in Washington.

In his prepared testimony for his semi-annual monetary policy report, Powell told Congress that President Donald Trump's tariffs pave a 'highly uncertain' path for the U.S. economy.

'Policy changes continue to evolve, and their effects on the economy remain uncertain,' Powell stated. 'For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.'

Powell added he doesn't know how much of that uncertainty will be passed through to consumers.

'The effects on inflation could be short lived — reflecting a one-time shift in the price level,' Powell suggested.

On the other hand, he said, 'It is also possible that the inflationary effects could instead be more persistent.'

Powell told committee members that avoiding that outcome would depend on the size of the tariff effects pending from Trump's trade policies.

But the central bank has been content with leaving rates unchanged, which has caused much frustration behind its 'wait-and-see' approach.

Why it Matters

The Fed last week held rates steady for the fourth consecutive time despite reportedly signaling things remain on track for two cuts this year.

Fed Governor Christopher Waller told CNBC during an interview last week that he doesn’t expect tariffs to boost inflation significantly.

'I think we’re in the position that we could do this as early as July,' he said. 

While Waller believes the odds improve for when the Fed meets again in July, President Trump continued his campaign to criticize 'too late' Powell over his stagnancy.

Trump called Powell 'destructive' as pressure builds for lower interest rates.

He and others in his administration believe the decision to cut rates would boost the economy.

Countries such as Europe have conducted '10 cuts' compared to the U.S., who 'have had none,' Trump stated.

Trump has claimed Powell’s lack of action has cost the U.S. ‘hundreds of billions of dollars.’

Other experts have expressed that the decision to remain still could result in stagflation, a concerning direction they believe the Fed cannot fix.

How it Affects You

Trump has claimed that lowering rates by 2 percentage points would save the U.S. $600 billion per year.

However, the latest U.S. Consumer Confidence Index report showed an unexpected drop in June.

It's a major indicator that market conditions have worsened, being dragged to their lowest level since the COVID-19 pandemic five years ago.

Previous reports highlighted lower CPI expectations in May, which may have finally begun to catch up in June-related readings.

The Fed warned that Trump's tariff policies could reverse two years of progress made toward inflation.

Powell's next moves will be critical concerning the global markets, consumer woes, and its monetary policy to help the Department of Treasury.