Federal Reserve chair blames Trump's tariffs for preventing interest rates cut
Trump has repeatedly urged Powell to reduce borrowing costs in the US economy. He posted a hand-scrawled note on his Truth Social platform on Monday, saying: 'You have cost the USA a fortune – and continue to do so – you should lower the rate by a lot!'
Speaking on Tuesday on a panel of central bankers organised by the European Central Bank (ECB) in Portugal, Powell said the Fed was waiting to assess the inflationary impact of the president's trade policies.
'In effect we went on hold when we saw the size of the tariffs,' Powell told the event in Sintra. 'Essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs. We didn't overreact, in fact we didn't react at all, We're simply taking some time.'
Asked if the Fed would have cut its key Fed funds rate further, from the current target range of 4.25-4.5%, if it wasn't for tariffs, Powell said: 'I think that's right.'
Economists generally expect tariffs to be inflationary, as the costs of paying them tends to be passed on to consumers. The effects are highly uncertain, however, as some retailers may be able to absorb some or all of the costs, or switch to alternative suppliers.
Powell said: 'We haven't seen effects much from tariffs, and we didn't expect to by now. We've always said the timing, amount and persistence of the inflation would be highly uncertain and it's certainly proved that.'
He added: 'We're watching. We expect to see over the summer some higher readings, but we're prepared to learn that it can be higher, or lower, or later or sooner than we'd expected.'
Trump has consistently sought to undermine Powell since returning to the White House. His treasury secretary, Scott Bessent, has suggested the administration might take advantage of the opening of a vacant seat on the Fed's board to appoint a potential successor.
'There's a seat opening up … in January. So we've given thought to the idea that perhaps that person would go on to become the chair when Jay Powell leaves in May,' he told Bloomberg TV.
Speaking alongside Powell, the ECB president, Christine Lagarde, suggested it was too soon to declare 'mission accomplished' on inflation; while the Bank of England governor, Andrew Bailey, said there were signs that the jobs market in the UK is slowing.
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