Fed holds policy steady, cites tariff uncertainty as key reason to wait on cuts

Federal Reserve Chair Jerome H. Powell told the House Financial Services Committee on Wednesday that the Federal Open Market Committee is maintaining its target range for the federal funds rate at 4.25% to 4.5% and is delaying any decision to cut until there is clearer evidence on the inflationary effects of recent tariff actions.

“We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks,” Powell said in his opening remarks, adding that while “inflation has come down a great deal,” it still remains somewhat above the Fed’s 2% objective.

Powell said incoming price data and business reports suggest tariffs are beginning to show through to prices and warned that the size, timing and persistence of any tariff pass‑through remain highly uncertain. “Increases in tariffs this year are likely to push up prices and weigh on economic activity,” he said, adding that the effects could be short lived or more persistent depending on how fully the costs are passed to consumers and on longer‑run inflation expectations.

Members of the committee pressed Powell on whether the FOMC sees a pathway to rate cuts if tariff effects prove small. Powell said several paths are possible: if tariffs and other forces result in less persistent inflation than expected, that would “tend to suggest cutting sooner.” Conversely, if inflation proves larger or the labor market remains unexpectedly strong, cuts would be pushed later.

Powell reiterated that the Fed’s decisions are data dependent. He pointed to recent labor market strength — payroll job gains averaging about 224,000 per month in the first five months of the year and unemployment at 4.2% in May — as one reason policymakers have not yet moved to reduce policy rates, even though many private forecasters have penciled in cuts later this year.

The Fed chair also stressed the agency’s dual mandate of maximum employment and stable prices and framed price stability as essential to sustaining strong labor markets in the long run. He told the committee the Fed remains “well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”

Several members urged action to lower rates sooner to ease borrowing costs for households and businesses; others warned that further rate cuts in the face of uncertain tariff pass‑through risk re‑igniting inflation. Powell said the committee will watch the June and July inflation readings closely and adapt policy as new information arrives.

Powell closed by reaffirming the Fed’s objective: “We at the Fed will do everything we can to achieve our maximum employment and price stability goals.”