Fed Chair Jerome Powell defended the central bank’s cautious stance on interest rates during day two of his Congressional testimony, citing significant uncertainty around the inflationary impact of tariffs. While Powell acknowledged tariff-driven price hikes could ultimately be transitory, he said Fed must prepare for the possibility that inflation proves more persistent. “As the people who are supposed to keep stable prices, we need to manage that risk,” Powell emphasized.
Powell emphasized that the Fed is operating in largely uncharted territory, warning that the magnitude of potential new tariffs dwarfs those imposed during Trump’s first term, and those earlier measures came when inflation was subdued. “There is not a modern precedent,” he said, cautioning against prematurely adjusting policy without a clearer picture of the economic impact.
“If it comes in quickly and it is over and done, then yes, very likely it is a one-time thing,” he said of tariff inflation. But if the Fed misjudges the situation, “people will pay the cost for a long time.”
