Federal Reserve Chair Jay Powell pushed back on expectations that the U.S. central bank will continue cutting interest rates in the coming months. He highlighted the Fed’s current dilemma: balancing inflation control with safeguarding jobs.
Last week, the Fed lowered its benchmark rate by 0.25 percentage points to the 4.0%–4.25% range. The decision followed signs of labor market weakness, even as the impact of import tariffs on price pressures remained limited.
While many investors anticipate up to two additional cuts before the end of 2025, Powell warned that this outlook is far from certain. He cautioned that easing too aggressively could leave inflation unresolved, potentially forcing the Fed to hike rates again later.
Inflation has stayed above the Fed’s 2% target since 2021 and may climb further due to President Donald Trump’s tariff policies that are raising costs for U.S. goods. Still, Powell noted that holding rates high for too long could unnecessarily weaken the labor market.
“In the short term, the risks lean toward higher inflation, while the risks to employment lean lower. This is a difficult balancing act,” Powell remarked in a speech in Rhode Island. “When our dual goals come into conflict, our framework calls for maintaining balance between them.”
U.S. equities slipped on Tuesday, led by declines in the tech sector. The Nasdaq fell 0.9%, with Nvidia down 2.8% and Oracle plunging 4.4%. The S&P 500 also lost 0.5%.
Powell further stressed that tariffs are largely being absorbed by domestic businesses rather than foreign exporters, countering claims from the White House. “Tariff revenues are running at roughly $300 billion a year. The key question is: who is paying? From what we see, it’s mostly U.S. importers and retailers, not overseas exporters,” he said.
The latest cut marks the first since December and comes amid political pressure from Trump, who has frequently criticized Powell for keeping borrowing costs high.
Powell explained that signs of a cooling labor market suggest policymakers should shift from a singular focus on inflation toward a more balanced stance. He emphasized that even after the cut, rates remain restrictive—curbing growth on one hand while helping restrain inflation on the other.
In the most recent meeting, 10 FOMC members supported a 0.25-point cut, while Stephen Miran, a Trump ally newly appointed to the Fed’s Board of Governors, pushed for a larger 0.5-point reduction. Of the 19 members, only 12 had voting rights at the time.
A slim majority within the FOMC backs at least two further cuts before year-end, but seven members opposed additional easing, with some even calling for rate hikes.
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