Why Powell Says Fed Rate Cuts Would’ve Happened Without Tariffs: Unpacking the Impact

Federal Reserve Chair Jerome Powell recently shared insights on the U.S. economy and interest rates. During a discussion in Portugal, he mentioned that the Fed might have acted differently if it weren’t for President Trump’s tariff plans. Powell stated, “In effect, we went on hold when we saw the size of the tariffs,” which significantly impacted inflation forecasts.

Currently, the Fed has kept interest rates steady between 4.25% and 4.5% since December. Many expect at least two rate cuts by the end of 2025, but Powell emphasized the importance of data. “We are going meeting by meeting,” he said, indicating that any adjustments depend on evolving economic indicators.

Powell’s cautious approach comes amidst pressure from the Trump administration. Recently, Trump publicly criticized Powell, calling him "terrible" and questioning his intelligence. When asked about his future with the Fed, Powell remained non-committal, noting his term as chair ends in 2026 but his governorship runs until 2028.

The uncertainty around tariffs has kept global markets on edge. Initially announced in early April, these tariffs have been adjusted multiple times due to market reactions. As a result, the S&P 500 has hit new highs, reflecting a rebound. Yet, many investors remain anxious about the long-term effects of these trade policies on growth and profits.

Experts from various fields suggest that the Fed’s current stance reflects ongoing challenges in balancing economic stability and growth. In a recent survey, over 60% of economists expressed concerns over inflation in light of trade policies. Powell echoed these sentiments, stating, “What keeps me awake at night is: How do we get that done?” His goal remains to ensure a stable economy for his successor.

This dynamic situation emphasizes the interconnectedness of trade policies and monetary decisions, making it a crucial topic for policymakers and citizens alike. You can check out more about these economic trends on the CME FedWatch tool for the latest updates.

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