Federal Reserve Chair Powell Defends Holding Interest Rates Amid Trumps Attacks

Jerome Powell, the chairman of the Federal Reserve, has reiterated that the central bank is well-placed to wait and see how tariffs affect US prices before cutting interest rates, despite renewed demands from Donald Trump for rate cuts. The US president has disregarded the central bank's longstanding independence to repeatedly call for rate cuts to spur economic growth and launch a series of personal attacks on Powell. In an overnight social media post, Trump branded the Fed chair as "very dumb" and claimed that the central bank's refusal to lower rates since December - in part, the result of uncertainty sparked by his own administration's erratic economic strategy - was damaging the US. Powell, who was appointed as Fed chair by Trump during his first stint in the White House, told the US House of Representatives financial services committee on Tuesday that the effects of tariffs will depend on their ultimate level and that the Fed is open to the possibility that the inflationary impact of tariffs may be less severe than expected. However, he noted that the administration's policies frequently shift and that policy changes continue to evolve. At its latest two-day policy meeting last week, the Fed kept rates on hold but its officials signaled that they might make two cuts this year. They lifted their projections for inflation and downgraded their estimates for growth. Powell stressed that the "obligation" of the central bank's policymakers is to "keep longer-term inflation expectations well anchored and to prevent a one-time increase in the price level from becoming an ongoing inflation problem." Powell's comments come amid a tense relationship between Trump and the Federal Reserve. The president has long criticized the central bank for not lowering interest rates fast enough to stimulate economic growth and has even suggested that he has the power to fire Powell. However, it is unclear whether Trump has the legal authority to remove Powell from his position as Fed chair. In his testimony on Tuesday, Powell reiterated that the Fed is committed to maintaining price stability and preventing a one-time increase in prices from becoming an ongoing inflation problem. He added that the central bank is well positioned to wait to learn more about the likely course of the economy before considering any adjustments to its policy stance. The Federal Reserve's decision to keep rates on hold last week was widely expected, as officials had signaled that they would be cautious in making any changes to policy given the uncertainty surrounding the economic impact of tariffs and other factors. However, some analysts have expressed concern that the central bank may be too slow in addressing potential inflationary pressures caused by tariffs and other factors. In his testimony, Powell also addressed concerns about the potential impact of rising debt levels on the economy. He noted that while debt levels are high, they are not at levels that would be "problematic" for economic growth and that the Fed is monitoring the situation closely. He added that while monetary policy can help manage debt levels, it is ultimately up to Congress and the executive branch to address the long-term sustainability of debt. Overall, Powell's testimony provided a clear indication that the Federal Reserve is committed to maintaining price stability and preventing a one-time increase in prices from becoming an ongoing inflation problem. However, it also highlighted the challenges facing the central bank in managing monetary policy in an environment of uncertainty and rising debt levels.