‘US Fed ‘well positioned’ for risks amid Trump tariffs’: Jerome Powell reiterates ‘go-slow’ approach on rate cuts

US Federal Reserve Chair Jerome Powell reaffirmed the central bank’s cautious stance on interest rates during his testimony before Congress on Tuesday, stating that inflation remains elevated while the job market remains strong.

After cutting rates by a full percentage point in late 2024, Powell indicated that the Fed does not feel pressured to make further adjustments in the near term. "With the economy remaining strong, we do not need to be in a hurry to adjust our policy stance," Powell said in prepared remarks to the Senate Banking Committee.

Uncertainty over future rate cuts

Market expectations for additional rate cuts in 2025 have waned. While Fed officials had projected two rate reductions this year, Wall Street analysts and investors are increasingly skeptical. Economists at Morgan Stanley now predict just one rate cut in 2025, with investors pricing in a potential cut in July.

Higher interest rates could prolong elevated mortgage rates and borrowing costs, though long-term Treasury yields, which influence mortgage rates, move independently of Fed decisions. "I don’t know when that will happen," Powell said when asked about the potential decline of mortgage rates.

Impact of Trump Administration policies

Powell’s testimony comes as the Trump administration introduces significant economic policies, including new tariffs on steel and aluminum and proposed federal spending cuts. While Powell refrained from directly commenting on trade policy, he acknowledged its potential economic impact. "The standard case for free trade logically still makes sense," he stated, adding, "it's not the Fed's job to make or comment on tariff policy...Ours is to try to react to it in a thoughtful, sensible way."

The administration’s policy direction has introduced further uncertainty into the Fed’s outlook. Powell referenced "risks and uncertainties" stemming from new tariffs, immigration policies that may reduce labor force growth, and potential tax and regulatory changes.

Fed independence and Musk’s treasury influence

A notable moment in the hearing occurred when Powell was questioned about Elon Musk’s involvement in government operations. Senator Raphael Warnock asked if Powell was aware of attempts by Musk or his Department of Government Efficiency (DOGE) team to access the Fed’s secure payment systems. "No, I do not believe that has happened," Powell responded, committing to inform Congress immediately if any such attempt were made.

Outlook for the Fed’s policy path

Powell reiterated that the Fed remains committed to its dual mandate of stable inflation and maximum employment. With inflation still above the Fed’s 2% target and the job market remaining resilient, policymakers are in no rush to cut rates further. "We do not need to be in a hurry to adjust our policy stance. We know that reducing policy restraint too fast or too much could hinder progress on inflation," he said.

The Fed’s next steps will be influenced by incoming economic data, as Powell delivers a second round of testimony before the House Financial Services Committee on Wednesday.