Fed Chair Jerome Powell said Tuesday the magnitude of President Trump’s April 2 “Liberation Day” tariffs forced the central bank to take its time instead of bowing to the White House and cutting interest rates sooner.
Mr. Powell pointed to Mr. Trump’s moves during a panel discussion at the European Central Bank’s retreat in Portugal.
“In effect, we went on hold when we saw the size of the tariffs and, essentially, all inflation forecasts for the U.S. went up materially as a consequence of the tariffs,” he said. “We didn’t react at all; we’re simply taking some time.”
He added, “As long as the economy is in a solid shape, we think the prudent thing to do is to wait and learn more and see what those effects might be.”
The Fed in June kept the benchmark interest rate at 4.25% to 4.5%, infuriating Mr. Trump, who says rates should be two or three points lower.
The president sent Mr. Powell a note on Monday criticizing the Fed for its refusal to cut rates while borrowers in other countries enjoy much lower rates.
“Jerome — You are, as usual, ’Too Late.’ You have cost the USA a fortune and continue to do so. You should lower the rate — by a lot!” Mr. Trump wrote.
Mr. Powell’s remarks effectively pointed the finger back at Mr. Trump and the uncertainty around his trade agenda.
The president imposed a blanket tariff of 10% on all imports and higher tariffs on steel, aluminum, cars and car parts. He paused higher, country-specific tariffs on dozens of trading partners for 90 days, hoping to strike bilateral deals that reduce trade barriers.
Mr. Trump has set a July 9 deadline to strike deals. He says he might reassign tariff amounts to most countries, leaving forecasters in limbo over the possible impacts.
“We’ve always said that the timing, amount and persistence of the [tariff-related] inflation would be highly uncertain,” Mr. Powell said. “We’re watching. We expect to see over the summer some higher [inflation] readings. But we’re prepared to learn that it can be higher or lower or later or sooner than we expected.”
He said members of the Fed will be open to cuts later this year but they’ll take it “meeting by meeting,” depending on the flow of the data.
He says inflation is cooling but remains slightly above the Fed’s target rate of 2%.
Mr. Powell’s term as Fed chairman lasts until May.
Mr. Trump says he’s not trying to fire Mr. Powell and seems inclined to wait until the chair’s term ends.
The president said he’s thought about replacements.
“Yeah, I know within three or four people who I’ll pick,” he told reporters during a press conference at the recent NATO summit. “I mean, he goes down pretty soon, fortunately, because I think he’s terrible.”
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