Tariffs Are Keeping Interest Rates High
Interest rates may have fallen this year, if not for the uncertainty and higher costs created by President Donald Trump’s tariff schemes.
Federal Reserve Chairman Jerome Powell told a House committee on Tuesday that the central bank likely would have “continued cutting” interest rates during the first half of 2025, but decided to hold rates higher as a hedge against the higher prices caused by tariffs. The Federal Reserve cut interest rates three times last year, but the central bank has not changed its benchmark interest rate since January and voted last week to hold those rates at the current level of 4.25 percent to 4.5 percent.
“If you just look at the basic data and don’t look at the forecast, you would say that we would’ve continued cutting,” Powell told the House Financial Services Committee on Tuesday. “The difference, of course, is at this time all forecasters are expecting pretty soon that some significant inflation will show up from tariffs. And we can’t just ignore that.”
Powell said that the Federal Reserve is still unsure how much of the higher costs from Trump’s tariffs will be passed along to consumers. Until there is more certainty about the federal government’s trade policy and the consequences of it, he said the central bank is taking a cautious approach.
On Wednesday, Powell repeated that warning to a Senate committee. “There will be some inflation from tariffs coming,” Powell told the Senate Banking Committee. He said that tariffs would raise prices for consumers and reiterated that the Federal Reserve is “just kind of waiting to see more data on that.”
Trump has been applying public pressure to Powell and the Federal Reserve to lower interest rates, but Powell’s comments this
Article from Reason.com
The Reason Magazine website is a go-to destination for libertarians seeking cogent analysis, investigative reporting, and thought-provoking commentary. Championing the principles of individual freedom, limited government, and free markets, the site offers a diverse range of articles, videos, and podcasts that challenge conventional wisdom and advocate for libertarian solutions. Whether you’re interested in politics, culture, or technology, Reason provides a unique lens that prioritizes liberty and rational discourse. It’s an essential resource for those who value critical thinking and nuanced debate in the pursuit of a freer society.
