Federal Reserve Chair Jerome Powell addressed Congress this week, providing insights into the central bank's stance on interest rates amidst ongoing economic challenges. Speaking to the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday, Powell emphasized that the Federal Reserve is not in a hurry to lower interest rates further. This approach comes as President Donald Trump pursues an aggressive tariff campaign against major U.S. trading partners, adding complexity to the economic landscape.
Powell described the U.S. economy as "strong overall," highlighting a "solid" labor market and noting that while inflation is easing, it remains above the Federal Reserve's 2% target. The Federal Open Market Committee recently decided to maintain the current benchmark fed funds rate within a range of 4.25%-4.5%, providing flexibility in monetary policy. This decision aligns with Powell's sentiment that the Fed does not need to quickly ease monetary policy, a stance widely interpreted by markets as likely to keep rates steady through the summer.
"We know that reducing policy restraint too fast or too much could hinder progress on inflation. At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment." – Jerome Powell
During his testimony, Powell reiterated the central bank's commitment to controlling inflation. Although he refrained from addressing tariffs directly, he is expected to field questions on this and other pressing issues from panel members. The Fed's current focus remains on managing inflationary pressures while maintaining economic stability.
Powell's comments came against the backdrop of President Trump's call for immediate interest rate reductions. Trump's tariff initiatives have added uncertainty to economic forecasts, and his administration is closely watching Treasury yields as an indicator of financial health. Treasury Secretary Scott Bessent mentioned that the administration places more emphasis on the movement of the 10-year Treasury yield than on the Fed's actions.
"Demand" that interest rates come down "immediately" – Donald Trump
In supporting the decision to keep rates unchanged, Powell has signaled that policymakers are exercising caution to balance economic growth with inflation control. His testimony underscored the complexity of navigating monetary policy amid external pressures and ongoing economic shifts.