Fed Chair Powell Maintains Wait-and-See Approach on Interest Rates Amid Economic Uncertainty

Federal Reserve Chair Jerome Powell stated on Tuesday that the central bank is prepared to keep interest rates unchanged for the time being while closely monitoring economic developments, according to his prepared remarks for the Semiannual Monetary Policy Report to Congress.

Powell noted that the U.S. economy is in a “solid position” despite ongoing uncertainty, with the unemployment rate remaining low at 4.2% in May. He added that labor market conditions are “broadly in balance and consistent with maximum employment.”

The Fed Chair acknowledged that inflation has “eased significantly” from its mid-2022 highs but still remains above the central bank’s 2% target. In particular, the total personal consumption expenditures (PCE) price index increased by 2.3% for the 12 months ending in May, while the core PCE, excluding food and energy prices, rose by 2.6%.

Powell also pointed out that inflation expectations for the near term have risen, with tariffs cited as a key driver. However, he noted that longer-term inflation expectations remain in line with the Fed’s 2% target.

The Federal Open Market Committee (FOMC) has kept the federal funds rate target range between 4.25% and 4.5% since the beginning of 2025. Powell emphasized that the Fed is “well-positioned to wait and learn more about the likely course of the economy” before considering any changes to its policy stance.

On the topic of tariffs, Powell cautioned that they could “push up prices and weigh on economic activity.” However, he suggested that the impact might be a temporary shift in price levels, rather than leading to persistent inflation. He reiterated the Fed’s commitment to preventing a one-time price increase from turning into an ongoing inflation problem.

Powell also addressed the recent dip in GDP growth, noting that while net exports fluctuated due to businesses importing goods ahead of potential tariffs, private domestic final purchases grew at a healthy rate of 2.5%. This highlights a more resilient underlying economy, despite the challenges posed by tariffs and external factors.