Federal Reserve Chair Jerome Powell on Wednesday defended the central bank’s reluctance to cut interest rates amid questions from Senate Republicans and a barrage of insults from President Trump.
During an appearance before the Senate Banking Committee, the Fed chair brushed off pressure from GOP senators and accusations of political bias from across Washington as he laid out the central bank’s concerns about the economic outlook.
Powell said that while he and his Fed colleagues are keeping an open mind about the potential impact of Trump’s tariffs, they felt it was unwise to cut rates and add more fuel to the economy before seeing the effects of the tariffs first-hand.
“If we make a mistake here, people will pay the cost for a long time,” Powell said.
Trump’s imposition of hundreds of billions of dollars in tariffs threw a wrench into the Fed’s efforts to bring interest rates down following the painful fight against post-pandemic inflation.
After hiking interest rates to four-decade highs during the middle of the Biden administration, the Fed began cutting its baseline borrowing rate last year as inflation dropped sharply. While Fed officials expected those cuts to stretch through the first half of 2025, Trump’s stunning election victory and sweeping changes to trade policy prompted the Fed to reconsider.
The Fed’s pause infuriated Trump, who elevated Powell to the Fed chairmanship in 2017 and then spent the following eight years rueing the decision. The bank’s decision to keep rates steady at a range of 4.25 to 4.5 last week fueled even more attacks from Trump and top administration officials.
“He’s a very stupid person,” Trump said Wednesday of Powell as the Fed chair was testifying before the Senate Banking panel.
Trump has accused Powell — a Republican — of using interest rates for political means by goosing the economy during Democratic presidencies, but refusing to do so while he’s in the White House.
Interest rate decisions, however, are made by the Federal Open Market Committee (FOMC), a broader panel of Fed officials chaired, but not controlled, by Powell. The FOMC voted unanimously last week to hold rates steady, even as some Fed officials expressed support for cutting rates soon.
Powell noted Wednesday that a majority of the FOMC expects to cut interest rates before the end of the year, but is simply taking a “careful approach” to a “critical question.”
Trump’s tariffs, if fully implemented, would raise taxes on foreign goods to levels not seen since World War II. The steep new import taxes — along with Trump’s frequent changes to them — have thrown businesses and consumers into deep uncertainty.
Powell has said for months that the Fed is in no rush to cut rates and risk another inflationary outbreak while the U.S. economy is still strong, even as it processes an unprecedented shift in trade policy.
“As the people who are supposed to keep stable prices for the benefit of the American people, we need to manage that risk,” Powell said Wednesday.
“In a situation like this, where the process could be on for a long time, where the effects could be large or small, it’s just something you want to approach carefully.”
Economists have forecasted a range of potential negative outcomes driven by Trump’s tariffs: a one-time increase in prices, longer-term inflationary pressure, a slowdown in U.S. growth or even stagflation — a combination of inflation and economic retraction.
Trump and White House economic officials have insisted that the U.S. economy will benefit on the whole from higher tax revenues and dismissed critics of their policies as hysterical worry-warts.
“That’s why President Trump calls Powell a loser,” wrote Commerce Secretary Howard Lutnick in a social media post.
“Because Powell would rather ignore the tariff revenues and keep US rates the highest in the world (for a first class country) because he’s afraid to act,” he continued.
Sen. Bernie Moreno (R-Ohio) also accused Powell of single-handedly keeping interest rates higher because he doesn’t approve of Trump’s trade policy and driving up the costs of the national debt by refusing to listen to the president.
“Nobody in this chamber has that kind of power to have a $400 billion impact on this economy, on our deficit,” Moreno said. “And I just think that you should consider whether you’re really looking at this from a fiscal lens or a political lens, because you just don’t like tariffs.”
Trump and Republicans have heaped pressure on the Fed to help them manage the national debt as they face a deepening fiscal mess.
The president and GOP lawmakers have urged Powell to make crisis-level cuts to interest rates and bring down the costs of servicing $36 trillion in national debt. Their push comes as Trump urges Congress to finalize a tax-cut bill that would add anywhere from $2 trillion to $4 trillion to the national debt over the next ten years, according to economic estimates.
At the same time, Trump and Congress must agree to raise the federal debt limit before the Treasury Department runs out of ways to avert a default.
The Fed, however, has not been involved in managing the national debt for more than seven decades, and doing so under Trump would mark a major shift in U.S. economic policy.
While Trump has threatened to fire Powell throughout his chairmanship despite the legal limits on doing so, most analysts expect the president to wait out the remainder of the Fed chair’s term, which expires in February.
Trump said Wednesday he was already speaking with a handful of potential candidates for the Fed chairmanship, which are expected to include Treasury Secretary Scott Bessent, Fed Governor Christopher Waller and former Fed Governor Kevin Warsh.
“I know within three or four people,” Trump said Wednesday of Powell’s eventual replacement during a press conference at the NATO summit. “I mean, he goes out pretty soon, fortunately, because I think he’s terrible.”
Trump’s pick should have little trouble winning confirmation from the GOP-controlled Senate, where the nominee will need support from a simple majority of the chamber to be confirmed.
Powell could stay on the Fed board as a governor through 2028 if he chooses. Doing so would be rare, but Powell has not ruled it out.