U.S. Federal Reserve Chair Jerome Powell signaled a cautious approach to interest rate adjustments on Tuesday, emphasizing the need to assess the inflationary impact of tariffs before making policy decisions. Testifying before the House Financial Services Committee, Powell stressed that the Fed’s priority remains managing inflation, even as trade tensions fuel economic uncertainty.
Tariffs and Inflation in Focus
Powell acknowledged that recent tariff hikes could drive up consumer prices and slow economic activity, with effects potentially visible in summer data. "We should start to see this over the summer… If we don’t, we are perfectly open to the idea that the pass-through will be less than we think," he said. The Fed’s current stance leaves the federal funds rate unchanged at 4.25% to 4.5%, reflecting a wait-and-see strategy amid mixed economic signals.
Consumer Confidence Wanes
Economic headwinds are already visible: first-quarter GDP dipped slightly, and consumer spending growth slowed. A TransUnion survey revealed rising pessimism, with 27% of respondents expressing concerns about their financial outlook—a 6% increase since late 2023. Inflation topped the list of worries for 81% of those surveyed, while recession fears hit a two-year high.
"There’s a very clear correlation between that pessimism and the uncertainty from tariffs," said Charlie Wise, TransUnion’s global research head. Powell reiterated that the Fed’s decisions will remain data-driven, balancing risks as trade policy evolves.
