Federal Reserve chair Jerome Powell pushed back on expectations of more interest rate cuts in the coming months, saying policymakers faced a “challenging situation” in deciding whether to prioritise fighting inflation or protecting jobs.
The Fed last week cut borrowing costs by a quarter-point to a range of 4 per cent to 4.25 per cent amid signs of weakness in the labour market and data showing the impact of tariffs on price pressures remained modest.
Many investors are banking on another two quarter-point cuts before the end of 2025. But Mr Powell on Tuesday signalled those moves were far from a done deal, saying if central bankers “ease too aggressively”, then they “could leave the inflation job unfinished and need to reverse course” to restore price increases to their two per cent goal.
Inflation has been above the central bank’s target since 2021 and is expected to rise further as President Donald Trump’s tariffs push up prices for US shoppers.
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However, Mr Powell also warned keeping rates “restrictive” for too long meant “the labour market could soften unnecessarily”.
“Near-term risks to inflation are tilted to the upside and risks to employment to the downside – a challenging situation,” he said in prepared remarks for a speech in Rhode Island. “When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate.”
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US stocks slipped on Tuesday, led by a decline in tech companies that gave back some of the previous session’s gains.
The tech-heavy Nasdaq Composite fell 0.9 per cent, with Nvidia down 2.8 per cent and Oracle losing 4.4 per cent. The blue-chip S&P 500 dipped 0.5 per cent.
Mr Powell said most of the cost of tariffs had been shouldered by US businesses and not – as the White House has claimed – foreign companies.
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“We’re collecting a good chunk of revenue, we’ve got a $300 billion-a-year pace (€255 billion). The question is who’s paying for that?” he said in a response to questions. “It’s incredibly early days, but it doesn’t look like overseas exporters are carrying the bulk of it. It looks like it’s ... retailers and it’s importers. And they’re not passing along to consumers that much of the cost.”
The Fed’s latest cut – the first since December – came during fierce pressure from US President Donald Trump, who has labelled Powell a “numbskull” for keeping borrowing costs on hold.
Mr Powell said the worsening of conditions in the labour market signalled to rate-setters that their “stance of having a really tight focus on inflation really needs to moderate towards a more balanced approach”.
US borrowing costs remain restrictive, constraining inflation but weighing on growth too, the Fed chair added in his prepared remarks.
While 10 members of the rate-setting Federal Open Market Committee (FOMC) backed a quarter-point cut, Stephen Miran, a Mr Trump ally who joined the Fed’s board on the morning of last week’s meeting, backed a bigger half-point move. The FOMC has 19 members but only 12 are able to vote at any one time.
While a narrow majority of 10 on the FOMC support two or more cuts by the end of the year, a sizeable minority of seven want no cuts at all, or for rates to rise. – Copyright The Financial Times Limited 2025
