Powell's Hearing: Tariffs Will Have a Significant Impact on Inflation Next, and There's No Rush to Take Action

On Tuesday local time, Fed Chairman Powell attended the hearing of the House Financial Services Committee as scheduled. He told lawmakers that inflation is expected to start rising soon, and the US Fed will continue to monitor the economic situation before deciding whether to cut interest rates.

Powell claimed, "For now, we are in a good position to wait and see, to learn more about where the economy might be headed, before considering whether to adjust our policy stance."

This statement contradicts Trump's stance of demanding an immediate interest rate cut. Earlier on Tuesday, Trump once again fiercely criticized Powell, saying, "I hope Congress can really teach this super stupid and stubborn person a lesson. We will pay for his incompetence for many years to come."

During the Q&A session of the hearing, several Republicans questioned Powell about why the US Fed had not yet taken action to reduce borrowing costs. Powell responded that most economists, both inside and outside the US Fed, still expected tariffs to push up inflation, and policymakers hoped to see the situation in the coming months before taking corresponding actions.

Powell said about tariffs, "We really don't know how much of it will be passed on to consumers. We have to wait and see. It is expected that tariffs will have a significant impact on inflation in June, July, and August."

Some lawmakers also expressed appreciation for Powell's actions focused on reducing prices and supporting maximum employment. Powell claimed, "I've talked to many lawmakers privately, and they said you (the US Fed) are doing the right thing. I've heard many lawmakers say that privately."

Josh Gottheimer, a Democratic representative from New Jersey, asked Powell whether Trump's "pressure" would interfere with the US Fed's decision-making. Powell responded that the US Fed hopes to provide a good economic environment for the American people, and that's all.

He added, "Everything else is a distraction. We always do what we think is right and bear the consequences. I don't know how else to do this job."

Powell also told the committee that "the tariffs imposed this year may push up commodity prices and put pressure on economic activity." He said that tariffs may cause a one-time shock to inflation or lead to a more prolonged round of inflation.

He indicated that the US Fed's responsibility is to "prevent a one-time shock from evolving into a persistent inflation problem," and that the overall inflation situation is currently showing positive trends.

The US Fed unanimously voted last week to maintain the benchmark interest rate unchanged, but the economic forecasts released simultaneously also showed increasingly apparent divisions: among the 19 members, 7 expected no interest rate cuts this year, 2 expected one cut, and the remaining 10 expected at least two cuts.

Powell noted that most Fed decision-makers supported an interest rate cut later this year, with "only a few" dissenting from this view.

Meanwhile, two Fed governors, Bowman and Waller, both supported an interest rate cut as early as July. Both officials were appointed by Trump during his first term, with Waller often mentioned as a potential successor to the Fed Chairman position in May next year.

In response, Powell said he would not open the door to an interest rate cut at the Fed's July meeting, as suggested by his two colleagues. "I don't want to specify which meeting will see a rate cut, but I don't think we need to rush. Given that the labour market remains strong and there is still so much uncertainty."