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Federal Reserve Chair Jerome Powell said he expects to see the impact of tariffs on inflation data in the coming months.
Despite this, he acknowledged the significant uncertainties surrounding the exact timings and magnitude of these effects.
US Fed in a difficult position
“We’re watching. We expect to see over the summer some higher readings,” Powell said on Tuesday.
Powell was speaking at the European Central Bank’s annual Forum on Central Banking in Sintra, Portugal, moderated by Bloomberg.
Still, he added, policymakers are prepared to learn the impact could be “higher or lower, or later or sooner than we expected.”
The US central bank is currently wrestling with an awkward tension between its forecasts and recent data.
Why is the Fed waiting on rate cuts ?
The Fed has put interest rates cut on hold this year, despite facing intense pressure from President Donald Trump.
A key reason for this delay is to assess whether tariff-driven price hikes will lead to persistent inflation. But so far, the price hikes aren’t showing up.
Powell reiterated that without Trump’s expanded use of tariffs, the Fed probably would have cut rates further this year.
“In effect, we went on hold when we saw the size of the tariffs, and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs,” Powell said.
“We think that the prudent thing to do is to wait and learn more and see what those effects might be,” he added.
July rate cut not ruled not
When asked whether July was too soon for a rate cut, Powell didn’t rule out the possibility.
“We are going meeting by meeting,” he emphasised, stating that any decision will depend on how the data evolves.
The next Federal Open Market Committee meeting is on July 29-30 in Washington.
Divided opinions within Fed
Policymakers voted unanimously in June to once again hold rates steady. However, updated quarterly projections revealed a split among Fed officials regarding the future path of rates.
While 10 policymakers anticipate at least two cuts this year, seven projected no cuts in 2025, and two others foresee just one reduction before the end of the year.
Tariff impact is still unclear
Trump’s imposition of new tariffs on dozens of US trading partners, along with his frequent fluctuations on the specifics of the duties and halting progress on striking trade deals, has led to uncertainty in the economic outlook, the news agency reported.
Forecasters widely expect the tariffs to put upward pressure on inflation and dampen economic growth. However, economic data have shown little impact on prices or the labour market.
“We’ve always said that the timing, amount and persistence of inflation would be highly uncertain,” Powell said on Tuesday.
Two Trump-appointed Fed governors, Christopher Waller and Michelle Bowman, have argued that a rate cut could be appropriate as soon as the Fed’s meeting later this month, citing benign economic data as one factor.
English (US) ·