During a speech at a European Central Bank event in Sintra, Portugal, U.S. Federal Reserve Chair Jerome Powell stated that the tariff policies adopted by President Donald Trump were a key reason behind the delay in cutting interest rates. He explained that these tariffs had led to a rise in inflation expectations in the United States, prompting the Fed to take a more cautious approach to lowering borrowing costs.
Powell clarified that the Federal Reserve did not react immediately to the tariffs, but instead decided to “wait and monitor the effects,” particularly since inflation forecasts increased significantly following the announcement of the new tariff levels. He added, “We would have cut rates if it weren’t for the tariffs. I think that’s right.”
His remarks were seen as a subtle response to the repeated public criticism he has faced from Trump, who recently called him “one of the worst choices” and claimed his policies were “costing the country a fortune” by keeping interest rates high (currently in the 4.25% to 4.5% range).
Nevertheless, Powell noted that the effects of the tariffs have not yet become clearly visible and emphasized that the timing, magnitude, and persistence of the inflationary impact remain “highly uncertain,” warranting continued observation over the summer.
Meanwhile, U.S. Treasury Secretary Scott Bessent hinted at the possibility of appointing a new nominee to the Federal Reserve Board as one of the seats becomes vacant in January. This move could potentially pave the way for replacing Powell when his term ends in May. Such speculation has contributed to a decline in the value of the U.S. dollar, which recorded its weakest first-half performance in over fifty years.
Despite the criticism, Powell received strong support during the European event, earning warm applause from the audience and his fellow central bankers after the issue of Trump’s personal attacks was mentioned.
In a related development, European Central Bank President Christine Lagarde stated that it was still too early to declare “mission accomplished” on inflation in the eurozone, while Bank of England Governor Andrew Bailey pointed to signs of a slowdown in the UK labor market.
This situation highlights growing tensions between monetary policymakers and the executive branch in the White House, placing markets in a state of anticipation over potential shifts in U.S. monetary policy and their global implications in the coming months.
