US Fed chief Powell says rate path unclear but tariff impact is coming

WASHINGTON – There are a lot of unknowns about the outlook for the US economy and interest rates, but US Federal Reserve chair Jerome Powell signalled at least one thing seems certain: Higher prices are coming.

Policymakers at the Fed voted unanimously to hold interest rates steady for a fourth straight meeting on June 18 as they await clarity on whether tariffs will leave a one-time or more lasting mark on inflation.

Mr Powell said it is still unclear how much of the bill will fall on the shoulders of consumers, but he expects to learn more about tariffs this summer.

“We’ve had goods inflation just moving up a bit,” Mr Powell said in a news conference after the Fed‘s policy meeting. “We do expect to see more of that over the course of the summer.”

“Ultimately the cost of the tariff has to be paid, and some of it will fall on the end consumer,” he said. “We know that’s coming, and we just want to see a little bit of that before we make judgments prematurely.”

US President Donald Trump’s 90-day pause on most of his sweeping “reciprocal” tariffs is set to expire on July 9, when levies would increase drastically for many nations, absent trade deals or a further extension.

Goods from the European Union, for instance, are facing a 50 per cent tariff.

If the Fed moves too quickly to lower interest rates, it risks inflaming inflationary pressures that are already poised to flare back up because of Mr Trump’s tariffs.

On the flip side, if it waits too long to cut, it could cause undue economic damage at a time when employers are already scaling back on hiring and fewer Americans are entering the workforce.

With such high stakes, Fed officials have signalled that they want to have tangible evidence on which way the economy is breaking before making any big decisions.

That suggests the Fed’s wait-and-see approach will endure until September at the earliest.

Investors now see more than a 70 per cent chance of a rate cut in September, according to interest rate futures.

The Fed’s latest economic projections also suggest a growing divide on its rate-setting committee.

While the median forecast in the so-called dot plot continued to show two rate cuts in 2025, seven officials now see no reductions in 2025. That compared with 10 policymakers who foresee two or more.

“They were unanimous in terms of not doing anything right now, but I think they’re divided in terms of how they view the risks,” said JP Morgan Asset Management portfolio manager Priya Misra. “I think the division in the dots for 2025 comes down to how different participants view the persistence of inflation.”

Asked about the division in officials’ rate projections, Mr Powell downplayed it.

Given the high level of uncertainty in the economy, he said, “no one holds these rate paths with a lot of conviction”.

Overall inflation in the US has stayed muted in recent months, even as the core measure has proved slightly stickier. 

Many companies have held off passing along price increases to their customers and are still working through stockpiles of inventory they amassed earlier in 2025 to avoid the higher costs associated with the tariffs.

Mr Powell said it has taken time for goods tariffs to work through the distribution chain, noting that many goods now being sold by retailers were imported months before tariffs were imposed.

These will be replaced by newer imports that are subject to the duties.

“So we’re beginning to see some effects, and we do expect to see more of them over coming months,” he said. “We do also see price increases in some of the relevant categories, like personal computers and audiovisual equipment and things like that, attributable to tariff increases.”

Mr Powell did note that some of the uncertainty associated with tariffs has come down as Mr Trump has backed away from the far higher tariff rates that he announced in April, including 145 per cent on Chinese goods.

He added that without tariffs, his confidence that inflation is coming down would have been building.

Fed policymakers on June 18 lifted their year-end forecast for “core” inflation, which strips out volatile food and energy prices and is seen as the most accurate gauge of underlying price pressures, to 3.1 per cent.

That is up from 2.8 per cent in March and 2.5 per cent in December.

While forecasters expect a “meaningful” rise in inflation, Mr Powell said the labour market is not “crying out for a rate cut”.

His cautious approach keeps him at odds with Mr Trump, who has demanded significantly lower interest rates from the Fed.

The US President has for months pressured the central bank to reduce borrowing costs, repeatedly lambasting Mr Powell and at one point raising the prospects of terminating his term before it ends in May 2026.

Mr Trump revived those attacks as recently as June 18, just hours before the Fed’s rate decision.

He repeatedly called Mr Powell “stupid” and floated the idea of installing himself as chair of the central bank as he called for borrowing costs to drop by 2.5 percentage points.

That is significantly more than what policymakers at the Fed suggest is appropriate, given their worries about inflation flaring back up. BLOOMBERG, NYTIMES