Fed Chair Powell Defends Rate Policy Amid Pressure from Trump

Federal Reserve Chair Jerome Powell testified before the House Financial Services Committee on June 24, 2025, affirming the central bank's decision to maintain the current interest rate policy and await further economic data before considering any rate cuts. This stance persists despite President Donald Trump's calls for immediate reductions.

Powell emphasized the Federal Reserve's commitment to its dual mandate of controlling inflation and supporting maximum employment, resisting political pressure and criticism from Trump. He stated that the path of policy will depend entirely on incoming economic information and what that means for the outlook.

The Federal Open Market Committee (FOMC) has maintained the federal funds rate in the range of 4.25%–4.50% since December 2024. This decision comes amid expectations that recent tariffs might increase inflation, though recent data suggest inflation remains subdued. In April 2025, President Trump implemented "Liberation Day" tariffs, imposing a baseline 10% tariff on imports from all countries, with additional country-specific tariffs ranging from 11% to 50%.

Despite Powell's cautious approach, some Federal Reserve officials have expressed differing views. Vice Chair for Supervision Michelle Bowman and Governor Christopher Waller, both appointed by President Trump, have indicated openness to rate cuts as early as July. Conversely, Cleveland Fed President Beth Hammack advised caution due to economic uncertainty, stating that given the current economic resilience and lack of clear signs of weakening, the risks of maintaining the current interest rate levels are low.

President Trump has been vocal in his criticism of the Federal Reserve's policies, advocating for immediate rate cuts to reduce government debt costs. He has urged Congress to push Powell toward rate cuts, highlighting significant political and institutional tensions around U.S. monetary policy.

Market reactions to Powell's testimony have been measured. Major indices such as the S&P 500, Dow Jones Industrial Average, and NASDAQ have shown modest gains, indicating investor confidence in the Fed's current stance. Yields on long-term Treasury bonds have declined, reflecting expectations of potential future rate cuts. Gold prices have experienced a slight decrease, suggesting reduced demand for safe-haven assets amid economic stability.

The Federal Reserve last cut rates in late 2024, reducing the federal funds rate by a total of 1% in the second half of the year. Since then, the Fed has paused amid uncertainty surrounding the impact of tariff policies. The "Liberation Day" tariffs represent one of the most significant U.S. protectionist trade actions since the 1930s, drawing comparisons to the Smoot-Hawley Tariff Act.

Powell indicated that a sharp rise in unemployment or weaker-than-expected inflation could prompt earlier action. However, he reiterated the importance of a data-driven approach, stating that the Federal Reserve will carefully assess incoming data, the evolving outlook, and the balance of risks before making any adjustments to the target range for the federal funds rate.

As the Federal Reserve navigates the complex interplay of economic indicators and political pressures, its commitment to data-driven policy decisions remains steadfast. The coming months will be critical in determining whether the central bank will adjust its stance in response to evolving economic conditions.