The central banker’s testimony before the House Financial Services Committee was sparked by the Fed’s recent semiannual Monetary Policy Report.
And while rate cuts are everyone’s favorite parlor game on Wall Street and beyond, the testimony and back and forth with lawmakers also spotlighted the lingering impacts of macro concerns on households.
“The economy remains solid,” Powell said. But within the data, consumer spending growth has moderated, and “surveys of households and businesses report a decline in sentiment over recent months and elevated uncertainty about the economic outlook, largely reflecting trade policy concerns. It remains to be seen how these developments might affect future spending an investment.”
Inflation: Short Lived or Long Lived?
In a nod to prices, Powell said that “effects on inflation could be short lived — reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent. There’s also lack of clarity on how long it will take these pressures to pass through fully into prices.”
He said, too, in his testimony that “increases in tariffs this year are likely to push up prices and weigh on economic activity.”
Rep. French Hill, R-Ark., chairman of the committee, asked Powell if — even as Fed Governor Christopher Waller has said rates might be cut as soon as July — with lower tariff rates, interest rate cuts might be on the horizon.
“I wouldn’t comment on any FOMC [Federal Open Market Committee] member’s comments one way or the other,” Powell responded. “But I will say this: I think many paths are possible. … We could see inflation come in not as strong as we expect, and if that were the case, which would suggest cutting sooner. We could see the labor market weakening, and that could also suggest cutting sooner.”
He added, “I would not want to point to any particular meeting; I don’t think we need to be in any rush, because the economy is still strong.”
Hill questioned Powell as to why tariffs would be thought of as being in the Fed’s “lane” for comment. Powell contended, “We don’t have a view. It’s not our job,” and that his remarks were not centered on tariff policy but on inflation.
“We wouldn’t comment on the reconciliation package that you’re working on. We’re not commenting on tariffs. What our job is, is keeping inflation under control and maximum employment,” he said.
Asked during the hearing as to a time frame for inflation trends to accelerate, Powell pointed to the summer.
“The non-tariff parts of inflation that we’ve been working on for three or four years have been behaving really well,” he told the committee. “That was our forecast, but it’s good to see it coming true. We’ve expected that tariffs take a while to work their way through the distribution channel — several months. And I would say we would expect to see meaningful effects in June, July, August.”
As he said at one point during back and forth with lawmakers, “We take what comes as it comes.”
