Powell Blames Trump's Tariffs for Delay in Interest Rate Cuts

Federal Reserve chair Jerome Powell told a gathering of central bankers that the tariffs imposed by President Donald Trump are the main reason the Fed has not made interest rate cuts as requested by the president. Powell emphasized that the Fed has been waiting to assess the impact of the tariffs on inflation, saying that they have caused a significant increase in inflation forecasts for the US. He also stated that the Fed is taking a cautious approach to determine the effects of the tariffs and will continue to watch the situation over the summer.

Key Takeaways:

• The Federal Reserve has not made interest rate cuts as requested by President Trump due to the impact of tariffs on inflation.
• Tariffs imposed by Trump have caused a significant increase in inflation forecasts for the US, according to Powell.
• Powell stated that the Fed is waiting to assess the impact of the tariffs and will continue to watch the situation over the summer.
• Economists generally expect tariffs to be inflationary, but the effects are highly uncertain and some retailers may be able to absorb some or all of the costs.
• Powell emphasized that the timing, amount, and persistence of the inflation caused by tariffs are highly uncertain and the Fed is prepared to learn that the inflation may be higher or lower than expected.
• Trump has consistently sought to undermine Powell and has threatened to replace him as Federal Reserve chair.
• The administration has given thought to appointing a potential successor to the vacant seat on the Fed's board that will open up in January.

Statistics:

• The current target range for the Fed funds rate is 4.25-4.5%.
• Powell stated that essentially all inflation forecasts for the US went up materially as a consequence of the tariffs.
• The tariffs imposed by Trump have caused a significant increase in inflation forecasts for the US.

Sources:

• European Central Bank (ECB) press release,
• Eckhart Tolle