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The US central bank is in no rush to slash interest rates any time soon, Federal Reserve Chair Jerome Powell told lawmakers Tuesday.
“With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” Powell said in prepared remarks.
The Fed chief is testifying on Capitol Hill as part of his semiannual monetary policy report, starting Tuesday with the Senate Banking Committee, followed by the House Financial Services Committee on Wednesday.
Powell’s comments jibe with those of other Fed officials and also with Wall Street, which is betting that interest rates will be held steady at the Fed’s March meeting, according to futures.
A new economic landscape
Although Fed officials don’t comment on fiscal policy, the Fed pays close attention to how Washington is shaping the economy. In less than a month, President Donald Trump has rolled out a flurry of policies that could impact consumer prices, the labor market, economic growth and global stability.
So far, that includes tariffs, mass deportations and cutting down on regulations, which includes gutting the Consumer Financial Protection Bureau. Later in the year, the administration is expected to tee up the extension of Trump’s 2017 tax cuts. Treasury Secretary Scott Bessent has also proposed bringing down long-term interest rates by targeting the yield on the 10-year US Treasury note, bypassing the Fed.
Trump’s shock therapy has already put American consumers and businesses on edge. The National Federation of Independent Business’ Uncertainty Index, released Tuesday, surged in January to its third-highest reading on record. The University of Michigan’s latest survey, released Friday, showed that US consumers soured this month amid fears that Trump’s tariffs could stoke inflation this year.
Fed economists devise economic models to forecast how the economy could perform under different scenarios and must now make sense of a drastically different economic landscape under Trump.
The US economy remains on solid footing
After slashing its key interest rate a full percentage point over three meetings last year, the Fed has adopted a holding pattern that could stretch on for months.
The US economy expanded a solid 2.5% last year, unemployment in January fell to a low 4% and consumers continue to spend at a healthy clip. That means the Fed can focus on fully tamping down inflation, which has showed limited progress in recent months, hovering closer to 3% than the Fed’s stated goal of 2%.
“Given the economy’s momentum heading into 2025, and with a healthy labor market, we have the luxury of being patient as we assess the path forward for inflation,” Cleveland Fed President Beth Hammack said Tuesday at an event in Lexington, Kentucky. “It will likely be appropriate to hold the funds rate steady for some time.”
The Fed acted aggressively when it began to cut interest rates in September, delivering a bold half-point cut. Signs of the labor market weakening more than expected contributed to that decision at the time, but those fears have since faded.
This story is developing and will be updated.
