Powell reiterates cautious stance, expects summer inflation to heat up, ignores Trump's request for interest rate cuts

Federal Reserve Chairman Jerome Powell reiterated that the Fed will continue to assess the impact of tariffs on inflation before deciding whether to cut interest rates, emphasizing that "waiting and learning more" is the prudent course of action at this time. His statement effectively puts aside the political demand from U.S. President Donald Trump for "immediate and significant interest rate cuts."

According to the Zhitong Finance APP, Powell made these remarks while attending the annual central bank forum of the European Central Bank in Sintra, Portugal, stating, "As long as the U.S. economy remains robust, we believe the prudent approach is to continue observing and understanding how the specific impacts of tariffs will manifest." The day before, Trump had personally written to Powell, stressing that other countries' central banks have significantly cut interest rates, and the U.S. should follow suit quickly.

During a discussion with other central bank officials, Powell further pointed out that he expects the price pressures from tariffs to appear in inflation data in the "coming months." "We are closely monitoring and expect to see inflation readings rise this summer." However, he also acknowledged that there is a high degree of uncertainty regarding the magnitude, timing, and persistence of inflation, stating it could occur earlier or later, and be higher or lower than anticipated.

Currently, the Federal Reserve is caught in a tug-of-war between predictions and actual data. Despite Trump's ongoing pressure for looser policies, the Fed has remained on hold this year, partly to observe whether tariffs will lead to persistent inflation. However, despite Trump imposing new tariffs on several trading partners, the related price increases have yet to appear in macro data.

Powell stated during congressional testimony, "If it weren't for model predictions that tariffs would push up inflation, we should have started cutting rates based on economic data."

The Fed's June monetary policy meeting maintained interest rates, with the Federal Open Market Committee unanimously approving this decision. However, the latest quarterly projections shown in the dot plot indicate internal disagreements regarding the future path of interest rates: 10 officials predict at least two rate cuts this year, while 7 believe there will be no cuts until 2025, and two officials expect only one cut this year.

Trump's tariff policy has brought significant uncertainty to the U.S. economic outlook. He has not only frequently changed the specifics of tariff policies but has also made slow progress in advancing trade agreements. These actions are widely believed to potentially raise inflation and hinder economic growth.

However, current data shows that the direct impact of tariffs on prices or the labor market remains unclear. Trump and his team have also urged the Fed to cut rates as soon as possible.

Notably, two Federal Reserve governors appointed by Trump, Christopher Waller and Michelle Bowman, support starting interest rate cuts as early as this month's meeting. They stated that the current economic data is stable and the labor market is strong, indicating that there is some room to lower policy rates