Late Wednesday, U.S. Federal Reserve Chairman Jerome Powell will testify before the House Financial Services Committee, where he will likely be asked about inflation and the Fed’s response to it. The U.S. Federal Reserve raised its benchmark rate in 2022 and 2023 to hit inflation by a two-year high of 5.3%. Inflation was significantly lower than its 9.1% peak in June 2022, and in the last three meetings last year, the rate lowered it to about 4.3%.
Trump’s response to interest rates with upcoming tariffs
Trump said on social media earlier Wednesday that interest rates should be lowered: “This will be closely related to the coming tariffs!!!” However, the rise in consumer prices makes it less likely that the Fed will quickly lower rates .
Fed officials are mostly confident that inflation will drop over time, but they hope further evidence that it is falling before the critical rate is lowered. Fed rates often affect other borrowing costs for matters like mortgages, auto loans, and credit cards.
The recent rise in inflation is the main reason why the Fed suspended its interest rate cuts after implementing three last year. On Tuesday, Fed Chairman Jerome Powell said, “We don’t need to rush” to further reduce testimony from the Senate Banking Committee. The Trump administration’s tariff policy could raise prices in the coming months. Trump imposed a 25% tax on steel and aluminum imports on Monday and promised more tariffs. Economists at Goldman Sachs predict that core inflation will drop almost to 2.3% annually by the end of this year without any import tariffs. But they expect tariffs to increase inflation to 2.8%.
On Tuesday, Federal Reserve Chairman Powell admitted that higher tariffs could increase inflation and limit the ability of central banks to lower interest rates, calling it a “possible result.” But he stressed that it depends on tariffs and how long it lasts to imports depends on how many imports are.
“In some cases, it’s not much, and in some cases it really can attract consumers,” Powell said. “It really depends on facts we haven’t seen yet.”
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