Powell Makes Case for Keeping Politics Out of Fed (Full Q&A)

Federal Reserve Chair Jerome Powell shrugged off pressure from the White House and rejected arguments for an interest-rate cut from two dissenting officials, maintaining that the central bank needed to stay on guard against inflation risk.

The Federal Open Market Committee voted to hold rates steady Wednesday — for a fifth consecutive time — prompting the first double dissent from Fed governors in more than 30 years.

During a press conference following the decision, Powell leaned into the view that the Fed is well-positioned for now, given lingering uncertainties surrounding President Donald Trump’s tariffs and their economic impact. His message was carefully balanced, tempering expectations for a September rate cut, but not closing the door to one.

“A reasonable base case is that the effects on inflation could be short-lived, reflecting a one-time shift in the price level, but it is also possible that the inflationary effects could instead be more persistent — and that is a risk to be assessed and managed,” Powell said.

The Fed chief noted several economic reports are due before the September meeting, including two months of data on employment and inflation.

“We’ll be taking that information into consideration and all the other information we get as we make our decision at the September meeting,” he said.

Investors had entered the day eager for a signal that officials might lower rates at the next meeting. They reacted to Powell’s comments by selling US Treasuries and pushing the dollar to its highest levels since May. The S&P 500 index fell.

Interest-rate futures showed traders pared back the probability of a September rate cut to about 40%, from around 60% prior to the decision.

Powell maintained a neutral stance, sending the message that officials still have a lot more to learn about the economy before they will be ready to act, said Claudia Sahm, chief economist for New Century Advisors and a former Federal Reserve economist.

“They’re going to need more data to resolve the disagreements, and that takes time,” Sahm said. “It could be purely that right now they want all their options open.”

Inflation Commitment

Trump’s imposition of new tariffs on dozens of US trading partners has injected uncertainty into the economic outlook and the Fed’s policy calculus. The Trump administration has been negotiating trade deals with several nations ahead of an Aug. 1 deadline, and has struck key agreements with Japan and the European Union.

“We’re still a ways away from seeing where things settle down,” Powell said of the negotiations. “Yes, we are learning more and more. It doesn’t feel like we’re very close to the end of that process,” he added.

Consumer-inflation data for June signaled companies are beginning to more meaningfully pass on some tariff-related costs to consumers. Powell suggested the Fed was “a bit looking through goods inflation by not raising rates.”

Looking ahead, he said policymakers would ensure that tariffs don’t lead to “serious inflation.” He added that policymakers aimed to balance cutting rates too soon, which could prevent inflation from reaching the Fed’s 2% goal, and cutting too late and potentially damaging the labor market.

“What we’re trying to do is accomplish that in a way that is efficient,” Powell said. “But in the end, there should be no doubt that we will do what we need to do to keep inflation under control.”

“The word of the day was ‘efficient’: It’s more efficient to stay on hold than to cut prematurely and then have to hike later,” analysts at Bank of America said in a note to clients.

Dissenting Views

Trump has been relentless in his calls for lower rates this year, including earlier Wednesday.

Since the Fed’s last meeting in June, Governors Christopher Waller and Michelle Bowman — both Trump appointees — laid the groundwork for their dissents, outlining a case for rate cuts as soon as this week’s gathering.

Bowman had pointed to signs of fragility in the labor market, while Waller said slowing private-sector payrolls also signaled underlying weakness in the US employment landscape.

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