Fed says no rush to cut rates, may act if inflation low or jobs slip
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The news: Federal Reserve Chair Jerome Powell told Congress the central bank is in no rush to cut interest rates, citing a strong labour market and uncertainty over the inflationary effects of President Donald Trump’s tariffs.
He said inflation is expected to begin rising this summer, and that upcoming data for June and July will be key. “We do expect [inflation] to move [up] in the summer... if we see it not happening, we will learn from that,” Powell said.
He added the Fed is “perfectly open” to the idea that the pass-through to consumers “will be less than we think.”
The context: Powell’s testimony comes amid an emerging split within the Fed. Two officials, Christopher Waller and Michelle Bowman, have said rates could fall as soon as July. But Powell and others remain cautious, awaiting clearer data.
The Fed held rates steady last week at 4.25–4.5%.
Powell also said changes to a key bank capital rule, the enhanced supplementary leverage ratio, could help banks better intermediate in the US Treasuries market.
The proposal would cut capital requirements for the biggest lenders by up to 1.5 percentage points. Regulators are expected to release the plan this week, aiming to ease pressure on banks during times of market stress.
What they said: “When the leverage ratio is binding, it discourages banks from undertaking low-margin, fairly safe activities such as mediation in the Treasury markets,” Powell said at the hearing. “This should encourage more mediation.”
Powell said interest rates were at a “modestly restrictive” level, signalling the economic conditions needed for earlier cuts.
“If we were to see that inflation is not coming through as our forecasting … have suggested, that would push us in the direction of being able to cut sooner. Also, if the labour market were to weaken, that would push us in the direction of being able to cut sooner,” he said.
“If the opposite happens, if the labour market remains strong and we do see higher inflation, I think we will still get around to cutting but it would be later, rather than sooner.”
Meanwhile, New York Fed President John Williams said he expects “uncertainty and tariffs to restrain spending and reduced immigration to slow labour force growth,” projecting growth to slow to around 1%, inflation to rise to 3% and unemployment to reach 4.5% by year’s end.
Atlanta Fed President Raphael Bostic told Reuters “there’s no rush” to cut rates, citing stable job markets and businesses planning price hikes in response to tariffs. “The question is not whether but when,” he said about higher prices, noting firms had nearly exhausted strategies to avoid passing on costs and he expects only a single rate cut late in 2025.
Cleveland’s Beth Hammack in a speech said she sees no “weakening in the economy that would merit imminent rate cuts,” adding policy may stay on hold “for quite some time.”
The sources: US Congress, US Federal Reserve
