Powell tells House Financial Services Committee Fed sees tariffs as an uncertain inflation risk; waits for data before cutting rates
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Summary
Federal Reserve Chair Jerome Powell told the House Financial Services Committee the U.S. economy remains "solid," unemployment is low and inflation has eased but remains above the Fed's 2% goal. He said tariffs are likely to push up prices but the size and persistence of that effect remain uncertain; the FOMC will watch incoming data before changing the federal funds rate.
Federal Reserve Chair Jerome Powell told the House Financial Services Committee that the U.S. economy remains "solid" with low unemployment but that the committee is monitoring an uncertain inflation path driven in part by recent tariff actions.
Powell said inflation has come down from its 2022 highs—personal consumption expenditures (PCE) prices rose about 2.3% year-over-year through May and core PCE excluding food and energy rose about 2.6%—but remains above the Fed's 2% longer-run objective. He said payroll job gains averaged about 224,000 per month in the first five months of the year and the unemployment rate was 4.2% in May.
The chair emphasized the committee's dual mandate of maximum employment and price stability and described the FOMC's current stance: the target federal funds rate range has been 4.25%–4.5% since the start of the year and the Fed is reducing its securities holdings at a slower pace to smooth the transition to ample reserves.
On tariffs, Powell said increases announced this year are "likely to push up prices and weigh on economic activity," but whether those effects are a short-lived, one-time level shift in prices or a more persistent inflationary pressure depends on their size, duration and how quickly they pass through to consumer prices.
"It remains to be seen how much of that will be passed through to the consumer," he said, adding that some pass-through is expected and that the committee will learn as retail and producer price data arrive in the coming months. Committee members expect to see tariff effects show up over the summer in measures of goods inflation and will treat observed outcomes as part of their forward-looking assessment.
Powell repeatedly told members the Fed will adapt policy to incoming data. He said several FOMC participants have written down rate cuts later this year in their projections, but the committee was not in a rush to move and sought greater confidence on the likely size and persistence of tariff-related price effects before cutting.
On longer-term inflation expectations, Powell said market- and survey-based measures remain broadly consistent with 2% and that the Fed's obligation is to keep those expectations anchored.
Committee members pressed Powell about timing and triggers for potential cuts. He said two developments would point to earlier cuts: (1) observed tariff pass-through materially smaller than current forecasts, and (2) notable weakening in the labor market. Conversely, stronger-than-expected pass-through or a resilient labor market would push the committee to move later.
Powell also defended the Fed's role and independence, saying the central bank does not set tariffs or fiscal policy but must account for the inflationary consequences of such policies in its price-stability objective.
Powell concluded that the Fed is "well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance."