Federal Reserve Chair Jerome Powell affirmed on Wednesday that President Donald Trump’s public calls for lower interest rates will not influence the central bank’s monetary policy decisions. During his semi-annual testimony before the House Financial Services Committee, Powell emphasized the Fed’s commitment to data-driven decision-making, stating that the institution will “continue to keep our heads down, do our work, and make our decisions based on what’s happening in the economy.”
This statement comes in response to Trump’s recent social media pronouncements urging for interest rate reductions, linking them to upcoming tariffs. Trump’s assertion that “Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!!” directly contradicts the Fed’s current stance.
Powell reiterated the Fed’s position, outlined last month, that after three rate cuts in late 2019, further adjustments would be paused pending clear evidence of inflation approaching the 2% target. This cautious approach reflects the Fed’s desire to assess the economic impact of Trump’s trade policies, including proposed and implemented tariffs. Many economists anticipate that tariffs will contribute to inflationary pressures, at least in the short term.
Reinforcing these concerns, recent government data revealed a January inflation increase of 3% year-over-year, up from a 3 1/2 year low of 2.4% in September. This rise in consumer prices further diminishes the likelihood of an imminent rate cut. The Fed’s benchmark interest rate influences borrowing costs across various sectors, affecting mortgages, auto loans, and credit cards.
Powell acknowledged the Fed’s progress in managing inflation, stating that they have “made great progress” but are “not quite there yet” in reaching the 2% objective. He emphasized that the “Today’s inflation print … says the same thing,” supporting the need for a “restrictive for now” monetary policy. The current rate level aims to curb borrowing and spending by both consumers and businesses.
Following a series of cuts last year, the Fed’s key rate now stands at approximately 4.3%, down from 5.3%. While December projections suggested two rate cuts in 2020, current economic indicators suggest the Fed might maintain its current stance throughout the year. Financial market analysts currently predict only one rate reduction, potentially occurring in October. The Fed’s commitment to a data-driven approach underscores its independence from political pressures and its focus on maintaining price stability and sustainable economic growth.
