Federal Reserve Chair Jerome Powell stated on Tuesday that recent tariff increases are likely to raise prices and negatively affect economic activity. Speaking before the House Financial Services Committee, Powell emphasized the need for the Fed to monitor whether these tariffs will push inflation higher before making decisions on interest rate cuts. He noted that while the inflationary impact could be temporary, reflecting a one-time price adjustment, it might also persist over time. “For now, we are in a good position to wait and gather more information about the economy’s trajectory before altering our policy,” he remarked.
Recent remarks from two Fed governors, both appointed by President Donald Trump, suggest rate cuts could occur as early as the July meeting, given that inflation has not yet responded to tariffs. However, concerns remain among some reserve bank presidents about rising inflation as the year progresses.
Rep. French Hill, R-Ark., chair of the committee, downplayed fears that tariffs would significantly drive up inflation. He highlighted the strategic nature of trade negotiations and cited Fed Governor Waller’s view that a balanced mix of rate cuts and tariffs could still support economic growth.
Recent data indicates that the overall impact of tariffs has been less severe than anticipated, though consumer sentiment remains cautious. The Conference Board’s latest consumer confidence report showed a decline, with the index dropping to 93 from 98.4 the previous month. Expectations for future business conditions also weakened, as fewer consumers anticipate improvements in the coming months.
— news from PYMNTS.com
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Tariffs Likely to ‘Weigh on Economic Activity’ Fed Chair Says
That’s according to Jerome Powell, the central bank’s chair, testifying Tuesday (June 24) that the Fed needs to see if tariffs push inflation higher before deciding on the interest rate cuts that President Donald Trump has demanded.
“Increases in tariffs this year are likely to push up prices and weigh on economic activity,” said Powell, whose testimony to the House Financial Services Committee was reported by Reuters.
“The effects on inflation could be short-lived, reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent. … For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”
The Reuters report noted that two Fed governors in recent days — both of them Trump appointees — have said rates could come down as soon as the July meeting considering that inflation has not yet risen in response to tariffs. However, two reserve bank presidents have said they are concerned inflation will intensify as the year goes on.
In his comments ahead of the hearing, committee chair Rep. French Hill, R-Ark., dismissed the notion that tariffs would drive up inflation.
“There is always some economic uncertainty when the United States engages in difficult negotiations necessary to secure more open markets for American goods and services. But that uncertainty is not without a strategy,” Hill said.
“One Fed official, Governor Waller, has outlined how a balanced approach, combining potential rate cuts with targeted tariffs, could still foster strong economic growth.”
As covered here Tuesday, the most recent inflation data suggest that the effect of tariffs overall has so far not been as drastic as some may have feared. Still, consumers are thinking what’s to come, with a spending picture that is mixed at best.
Tuesday also saw the release of The Conference Board latest report on consumer confidence, which declined following a bounce in May. The overall index fell to 93, down from 98.4 in the prior month.
“The look ahead, in terms of forward looking expectations, showed a 69 reading, down from 73.6 in May,” PYMNTS wrote. “Future business conditions also waned, as 16.7% of consumers said they expect business conditions to improve in six months. That’s lower than the 19.9% in May.”