Jay Powell pushes back on calls for Federal Reserve rate cuts as soon as July

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Federal Reserve chair Jay Powell has signalled interest rate cuts are off the table until at least September, as he pushed back against Donald Trump’s call for an immediate reduction.

Speaking in Congress after two Fed board members indicated they would back a cut at the next rate-setting vote in July, Powell indicated he would not support such a reduction in borrowing costs until early autumn, largely because of the risk to inflation posed by the president’s tariffs.

The Fed chief said that the central bank would see the tariffs’ impact on consumer prices “in the June numbers and the July numbers”, adding: “As we go through the summer we should start seeing this.”

He continued: “If we don’t, we’re perfectly open to the idea that the pass-through [impact on inflation of the tariffs] will be less than we think it is. So that’ll matter for policy.”

Powell’s comments contrast with remarks by Fed governors Christopher Waller and Michelle Bowman, who base their support for a July cut on the argument that recent inflation readings — particularly May’s lower-than-expected figure — suggest that Trump’s tariffs will have less impact on prices than feared.

Hours ahead of Powell’s testimony, Trump posted on his Truth Social network: “I hope Congress really works this very dumb, hardheaded person, over. We will be paying for his incompetence for many years to come.”

The president has subjected Powell, whose term as Fed chair ends in May 2026, to a barrage of calls for a cut in benchmark borrowing costs of “at least” two to three percentage points. 

Powell said on Tuesday of Trump’s remarks: “They’re having no effect. We’re doing our jobs.”

John Williams, who as head of the New York Fed is an influential voice on the FOMC, on Tuesday threw his support behind Powell’s stance.

He said “modestly restrictive” rates were “entirely appropriate” and “allows time to closely analyse incoming data”.

“Much of the soft data we’ve seen in recent months captures the heightened uncertainty about the path of the economy,” Williams said. “But it’s too early to say what the future trajectory of the hard data will be.”

The Fed lowered borrowing costs by 1 percentage point last year, but many senior central bankers say they want to wait and see how the impact of the trade war plays out before cutting rates again.

In prepared remarks, Powell told the House of Representatives’ financial services committee, that while the inflationary impact of the US president’s policies “could be shortlived”, it was “also possible that the inflationary effects could instead be more persistent”. 

He added that the US economy, remained “in a solid position”, signalling that he believes interest rates can stay where they are for now, without unduly damaging America’s labour market.

“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,” Powell said.

“If you just look in the rear-view mirror and look at the existing data we’ve seen, you can make a good argument that would call for us to be at a neutral level, which would be a couple of cuts,” he later added.

“The reason we’re not is that all the professional forecasters that I know of on the outside of the Fed do expect a meaningful increase in inflation over the course of this year.”

Powell told lawmakers that there was a heightened risk that inflation expectations could quickly become unanchored, should tariffs push up prices, due to Americans’ recent experience with elevated inflation.

“We haven’t restored price stability and, if there’s a meaningfully large and sustained inflation shock, we have to be careful about that,” he said.

At 4.25 to 4.5 per cent, the Fed’s benchmark target range remains in restrictive territory — above a neutral level that neither limits nor spurs growth.

Fed officials are increasingly split on where borrowing costs will end up by the end of 2025.

While both Waller and Bowman want cuts as soon as July, seven officials do not think interest rates will move at all this year.

Ten members support two or more quarter-point cuts, with the remaining two backing one cut.