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At a panel hosted by the European Central Bank in Sintra, Portugal, on July 1, 2025, Fed Chair Jerome Powell explained that the U.S. central bank had paused plans for further interest rate cuts due to President Trump’s sweeping tariff policy. This hesitation reflects their desire to fully measure how tariffs could influence inflation before taking action.
“In effect, we went on hold when we saw the size of the tariffs, and essentially all inflation forecasts for the United States went up materially as a consequence,” Powell noted. “We didn’t overreact — in fact, we didn’t react at all. We’re simply taking some time.”
What Powell Said, in Four Key Points
Key Takeaway Summary
1. Tariffs pressured inflation expectations. Tariff hikes from early 2025 – including those on steel, aluminum, autos, and universal import tariffs – raised inflation forecasts, prompting the Fed to pause its cuts.
2. No immediate need for rate cuts. Despite political pressure, Powell emphasized that the economy remains “healthy overall,” with inflation at around 2–2.5% and unemployment at 4.2%.
3. Data-driven, meeting-by-meeting approach. He stressed that they’re “waiting and learning more,” remaining open to cuts in July (at the July 29–30 meeting) but not committing prematurely.
4. Defending Fed independence. Amid scathing commentary from Trump, including a handwritten letter urging rate cuts, Powell underscored the Fed’s non-partisan stance, focused on long-term stability.
What Others Are Saying
- Reuters reports that Powell’s stance has injected fresh uncertainty into markets, with trading now tightly linked to upcoming employment and inflation data.
- Business Insider adds that most Fed officials still expect a couple of rate cuts this year, but the tariffs delay introduces new uncertainty.
- AP News and CBS News reinforce that inflation, recently at around 2.4% (year-over-year in May), hasn’t spiked yet—but the Fed insists on caution.
Why This Matters
- Market and business forecasts are unpredictable: Tariffs could lead to sudden cost-push inflation, clouding decision‑making for businesses and investors.
- Fed’s credibility tested: Powell’s resolve is being challenged by critics, yet he’s deliberately resisting direct political influence.
- July could be pivotal: With major economic releases (jobs, CPI) due mid-month and another Fed meeting ahead, July may determine whether cuts start or are further delayed.
Bottom Line
Powell’s message is clear: tariffs disrupted the Fed’s original rate‑cut timeline. Rather than race to reduce borrowing costs under political pressure, the Fed is pausing, collecting data, and assessing risks. While not ruling out a rate cut this summer, officials are unwilling to act before:
- Prices begin rising as expected from tariff effects,
- The labor market also shows signs of weakening.
What to Watch Next
- U.S. job report for June (due July 3–4): Will it reveal cooling slack?
- June inflation readings (CPI/PCE) in mid‑July: Any upward pressure from tariffs?
- July 29–30 Fed meeting: Will the data justify a policy shift?
Overall, Powell’s tone remains pragmatic: the Fed is not blindly cutting for optics, but actively navigating complex trade and inflation dynamics. Expect more volatility in the lead-up to key economic signals—and a central bank ready to pivot swiftly if risks materialize.
