Powell Flags Tariff Risks as Fed Delays Rate Cuts

Federal Reserve Chair Jerome Powell stated Tuesday that tariff-induced inflation concerns have prevented rate cuts this year, a shift from earlier expectations. "In effect, we went on hold when we saw the size of the tariffs," Powell told lawmakers, noting all major inflation forecasts rose materially as a result.[3] The Fed held rates steady at its late January meeting, maintaining the target range for the federal funds rate at 3½ to 3¾ percent after three prior cuts totaling 75 basis points since last September.[1] Powell described the U.S. economy as entering 2026 on a "firm footing," with resilient consumer spending and expanding business investment despite low job gains and weak housing activity.[1] Inflation has eased from its 2022 peak but remains somewhat elevated, particularly from tariffs pushing goods prices higher, though services disinflation continues and long-term expectations stay anchored near 2%.[1] Powell emphasized the one-time nature of tariff-driven price hikes, positioning the Fed "well placed" to respond meeting by meeting.[1] Tariff effects have yet to fully materialize, but Powell warned of higher inflation readings this summer as costs filter through supply chains.[3][4] "We're watching, we expect to see over the summer some readings, higher readings," he said, adding policymakers are prepared for impacts to vary in timing or magnitude.[3] The economy's strength allows this wait-and-see approach without urgency.[4] Internal Fed tensions persist, balancing inflation risks against softening labor market signals.[1] Dissent emerged in January deliberations, with downside employment risks rising per Powell's Jackson Hole remarks, though no timeline for cuts was offered.[1][2] Powell reiterated decisions hinge solely on data, ignoring external pressures like those from former President Trump.[2] Markets remain on edge, with forecasts predicting meaningful inflation upticks this year across professional and Fed estimates.[4] If pressures stay contained, cuts could come sooner; otherwise, delays loom as the Fed prioritizes its 2% target.