Fed Governor Powell's Speech: Keeping Interest Rates the Same Was the Most Reasonable Decision
After the May policy meeting, US Federal Reserve Chairman Jerome Powell said that keeping interest rates at 4.25–4.5% was a reasonable decision in the current economic context with many uncertainties. What needs to be done now is “wait for more clarity”.
According to Mr. Powell, the US economy is still generally strong. Although GDP decreased in the first quarter, the main reason was the fluctuation in imports, many businesses and households increased imports to avoid new tariffs.
Video of full speech by Fed Governor Powell
Inflation has cooled but remains above the Fed's 2% target. Meanwhile, the labor market continues to maintain stability and close to maximum employment.
He also warned of growing risks to both of the Fed’s goals: controlling inflation and ensuring employment. The Trump administration’s tariff policies, especially its broad import tariffs, have exacerbated these risks and threaten to create a situation called “stagflation,” where inflation rises while economic growth weakens.
Powell said the Fed remains comfortable with its current monetary policy, which is flexible enough to respond quickly if conditions change.
The Fed can afford to be patient, he asserted, because the cost of waiting is currently quite low.
Each week and month ahead will bring more data for the Fed to better assess the impact of the tariffs and make appropriate adjustments if needed.
While Powell said the risks of higher inflation and higher unemployment were increasing, he said there was not enough actual data to make a new decision.
He also dismissed any influence from President Trump's public statements calling for interest rate cuts, asserting that the Fed is completely independent in its decision-making process.
The Fed will continue to monitor the situation closely. If there is further evidence of inflationary pressures or economic weakness, the Fed is prepared to act.
But until there is enough clear data, maintaining current policy is the most sensible course.
