Fed Chair Powell Stands Firm on Rate Hikes Amid Trump Pressure and Fed Divide

Federal Reserve Chair Jerome Powell told House lawmakers today that the central bank is "well-positioned to wait" on any interest rate adjustments until it has more clarity on how President Trump's tariffs will affect inflation and the direction of the US economy. Powell's wait-and-see strategy comes as he faces intensifying pressure for rate cuts from the White House and even some of his fellow central bank policymakers. "Increases in tariffs this year are likely to push up prices and weigh on economic activity," Powell said during his semiannual testimony Tuesday before the House Committee on Financial Services. The Fed is "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 acknowledged under questioning from GOP Rep. French Hill, chair of the House committee, that "many paths are possible" on rates, including "cutting sooner" if inflation does not heat up as expected or the labor market weakens. Powell's guarded approach is inflaming tensions with Trump, who continues to hammer the chairman and the central bank to cut rates. The president's attacks intensified at the end of last week as Trump called for rates to drop from 4.25% to 4.5% to between 1% and 2% and said of Powell and the Fed's board of governors: "I don't know why the Board doesn’t override this Total and Complete Moron!" Trump repeated some of those points in a Tuesday social media post at 1:32 a.m. ET, calling for rates "at least two to three points lower" and saying that Powell "will be in Congress today in order to explain, among other things, why he is refusing to lower the Rate." "I hope Congress really works this very dumb, hardheaded person, over. We will be paying for his incompetence for many years to come." The recent comments from Powell and other Fed officials have not been the only sign of an increasing divide within the central bank. There was also a difference of opinion evident last week in the Fed's latest "dot plot" outlining future interest rate moves. While eight officials saw two cuts still happening in 2025, seven officials predicted no cuts at all, up from the four officials who made that call previously. Some Fed watchers worry that any sustained increase in oil prices would add to the inflationary impulse already present in the US from Trump's tariffs. Wall Street analysts at JPMorgan Chase (JPM) have warned that a prolonged conflict and the potential closure of the critical Strait of Hormuz could drive oil prices as high as $120 a barrel, pushing US inflation back toward 5%. That could bolster the argument of some hawks at the Fed that rates need to stay where they are for longer to protect against another inflation surge. On the other hand, there is also an argument circulating on Wall Street that any new conflict in the Middle East could push the Federal Reserve to cut interest rates sooner than expected. Trump said on Friday that if Powell is concerned about inflation or anything else, then "all he has to do is bring the rate down, so we can benefit on interest costs, and raise it in the future when and if these 'other elements' happen." He also mused once more about removing Powell before his term as chair ends next May, an option he previously said he had rejected. "Maybe, just maybe, I'll have to change my mind about firing him? But regardless, his Term ends shortly!" Powell has consistently brushed off any criticism from the president, saying it doesn't interfere with his job and that he plans to serve out his full chairmanship term, slated to end in May 2026. When asked Tuesday about Trump's insults, Powell said, "We are focused on one thing: We want to deliver a good economy for the benefit of the American people. Anything else is kind of a distraction." "I don't know how else to do the job," he added.