Powell Signals No Rush to Cut Interest Rates as U.S. Economy Remains Strong
The comments below are an edited and abridged synopsis of an article by Scott Horsley, NPR Org
Despite ongoing expectations for interest rate cuts, US Federal Reserve Chair Jerome Powell made it clear that the central bank is in no hurry to lower rates. Speaking before a Senate Committee, Powell emphasized that with a resilient job market and inflation still above target, policymakers see no immediate need for further rate reductions.
At the December 18, 2024 Federal Reserve meeting, officials cut the benchmark interest rate by a quarter point, bringing it to a range of 4.25% to 4.50%. However, they signalled only two additional cuts in 2025, while also revising their inflation outlook upwards. Powell reaffirmed this stance in his testimony, noting that the Fed had already lowered rates by a full percentage point last year. Any further reductions would depend on inflation cooling further or a weakening of the labour market.
Trump’s Economic Policies and Inflationary Pressures
A major concern for the Fed remains the economic uncertainty brought about by President Donald Trump’s policies, particularly tariffs. Trump’s recent decision to impose 25% tariffs on all imported steel and aluminium, along with threats of broader trade restrictions, could fuel inflation, making it more difficult for the Fed to justify rate cuts. However, Powell steered clear of commenting directly on the administration’s trade policies, deferring to Congress and the executive branch.
Democratic Senator Jack Reed raised concerns about Trump’s growing influence over institutions, referencing his decision to make himself chairman of the Kennedy Center’s board. Reed questioned what Powell would do if the president attempted to remove a Federal Reserve board member. Powell assured lawmakers that such an action is not permitted under the law. While Trump currently lacks vacancies to fill on the Fed’s board, he will have the opportunity to shape its future when Powell’s term as chair ends in May 2025.
Regulatory Oversight and ‘Debanking’ Controversy
Republican senators pressed Powell on allegations that the Fed and other regulators had discouraged banks from servicing certain industries, particularly cryptocurrency businesses, under the Biden administration. Senator Tim Scott argued that businesses operating legally in the US should have access to banking services. Powell acknowledged the concerns and committed to reviewing the Fed’s bank supervision policies.
Meanwhile, Democratic lawmakers raised alarms over the weakening of consumer protections under the Trump administration. Senator Elizabeth Warren, a key figure in establishing the Consumer Financial Protection Bureau (CFPB) after the 2008 financial crisis, criticized the administration for effectively shutting down the agency. She argued that without the CFPB’s oversight, consumers are left vulnerable to predatory financial practices. Warren urged Powell to ensure continued funding for the agency, which was designed to be independently funded through the Fed to prevent political interference.
Conclusion
The Federal Reserve remains cautious about future interest rate cuts, balancing inflation concerns with economic stability. While Powell’s testimony reaffirmed the Fed’s independence, growing political pressures—from Trump’s trade policies to regulatory oversight debates—could shape monetary policy decisions in the months ahead. With the 2024 election cycle intensifying, all eyes will be on how these factors influence the central bank’s next moves.