Fed’s Powell sidesteps Trump’s tariff policies, repeats support for free trade

Federal Reserve Chair Jerome H. Powell trod carefully Tuesday around questions about President Donald Trump’s new trade and financial policies, saying he still believes economies function best without tariffs on their trading partners.

Powell, kicking off two days of Capitol Hill testimony, stopped short of critiquing Trump’s new tariffs. But he stood by remarks he made during the first Trump administration, that countries that remain open to trade have stronger economies and higher incomes.

“Yes … I would stand by that,” Powell told the Senate Banking Committee, in reference to his testimony from July 2018. He added that it isn’t the Fed’s job to make or comment on tariff policy, saying, “that’s for elected people.”

The Fed has entered a new wait-and-see policy stance amid a cloudy economic outlook and uncertainty over whether some of Trump’s policies could stymie the fight against inflation. Trump signed a pair of executive orders Monday imposing 25 % tariffs on imported steel and aluminum, the latest in his effort to overhaul the U.S. trading relationship with the rest of the world.

After the Fed trimmed borrowing costs by a full percentage point between September and December of last year, it hit the pause button last month at its first meeting of 2025. Officials have given no indication of when they would cut again but have signaled that they anticipate the pace of cuts slowing to just two this year, down from the four cuts projected before the election.

The Fed’s benchmark short-term rate, which trickles through the financial system to influence what millions of consumers and businesses pay to borrow money, sits at 4.25 to 4.5 %. Despite the consecutive Fed cuts last year, longer-term interest rates for government borrowing and even for consumer mortgages have risen, partly reflecting expectations of a stronger economy going forward.

On Tuesday, Powell told lawmakers that the Fed is in no rush to cut again with the economy in strong shape and inflation still “somewhat elevated.”

“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,” he said in prepared remarks at the start of Tuesday’s hearing.

If the economy remains strong and inflation does not continue to cool toward the Fed’s 2 % goal, “we can maintain policy restraint for longer,” Powell said.

On the other hand, if the labor market were to weaken unexpectedly, or inflation were to fall more quickly than anticipated, he said, “we can ease policy accordingly.”

After raising interest rates at a rapid clip to tackle shockingly high inflation in 2022, the Fed kept rates elevated for about a year, before it began to lower them in September to shore up a softening labor market.

But concerns about the labor market have generally dissipated, with the unemployment rate remaining low.

“Overall, a wide set of indicators suggests that conditions in the labor market are broadly in balance,” Powell said Tuesday.

Now, inflation remains stubbornly elevated, hovering above the Fed’s 2 % goal, though there are signs it continues to slowly cool. Underlying inflation that strips out volatile food and energy prices eased down in December’s consumer price index. Price increases for housing, one of the biggest components of the index, are also beginning to ease.

Later Tuesday, Powell declined to comment on Trump’s remarks from over the weekend suggesting that Elon Musk’s government efficiency team had found irregularities with Treasury Department payments and that the government could simply disregard some of its financial obligations, according to Bloomberg News.

“I’m not going to comment on things the president says,” Powell said in response to a question from Sen. Mark R. Warner (D-Virginia).

Powell also declined to take a victory lap for a tackling inflation without pushing the economy into a recession, a “soft landing.”

“I don’t know why you don’t take the credit. Everybody else in Washington, D.C., does,” said Sen. John Neely Kennedy (R) of Louisiana. “I never imagined that our landing could be this soft, albeit not perfect.”