At the ECB forum in Sintra, Portugal, Fed Chair Jerome Powell suggested that the U.S. central bank “would have” cut interest rates earlier if it weren’t for President Trump’s tariff policy. This exposed how higher tariffs have delayed a central bank’s ability to ease monetary policy when inflation began to rise.
Why Tariffs Matter
When asked whether the Fed would have eased rates if it wasn’t for Trump’s tariffs the answer was “I do think that’s right,” and Powell noted that the planned cuts took a back seat after tariffs pushed inflation upward, saying that all of the projections for inflation in the U.S. increased materially once the scale of the tariffs became clear.
This is so different; while the market has been predicting cuts, the Fed has kept the federal funds rate in the same fixed range of 4.25-4.50% since December. Powell claimed that the central bank simply went into a wait and see type of approach to assess policy effects.
Panel Remarks and Political Pressure
During the Sintra conference Powell reaffirmed that the Fed “essentially went on hold” when the tariffs were announced and stated “we didn’t overreact…. we’re just taking some time.”
Political pressure has increased particularly with President Trump publicly demanding rate cuts, telling Powell he was “dumb” and a “moron.” Treasury Secretary Scott Bessent pointed out that the decision making for Tian and rates were determined by the Federal Open Market Committee, not just the chair.
In spite of the external tentacles from Washington, Powell held tight to the Fed’s independence connected to being data driven, stating his thinking regarding all inclement future decisions can be made “meeting by meeting” and he was open to cuts but only on solid evidence, combined with managed inflation.
