Fed Chair Sends Strong Message On Tariffs To Senate Panel

If you’re wondering how tariffs will impact your family’s shopping habits for the rest of the year, you’re not alone.

Lawmakers on Capitol Hill spent two days grilling Federal Reserve Chair Jerome Powell on when the American people will know the results of President Donald Trump’s tariffs on interest rate cuts.

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Specifically the Senate Committee on Banking, Housing and Urban Affairs Jan. 25 asked Powell when the central bank will cut interest rates for the first time this year and why tariffs seem to play such a critical role.

WASHINGTON, DC - Federal Reserve Chairman Jerome Powell testified before the Senate Banking Committee June 25, 2025 to deliver the Fed's bi-annual report on monetary policy. 

Kevin Dietsch/Getty Images

Powell offers strong messages on interest rate cuts.

The Fed’s dual mandate is to prudently monitor monetary policy to maintain inflation (at about 2%) and relatively low unemployment to keep the economy recession-free and its GDP humming. It’s a delicate balance designed to keep the U.S. economy out of recession or worse, stagflation.

The Federal Open Meeting Committee controls the Federal Funds Rate, which banks charge each other overnight to borrow money. At the June meeting, the funds rate stayed at 4.25% to 4.50%. The last funds rate cut was in December 2024.

The funds rate is tied to the cost of borrowing money for consumers, investors, and businesses. It influences everything from your mortgage to 10-year Treasury bonds. Toss in student loans, credit cards, business investments, and auto financing, and the depth and breadth of the fund rate's reach can be mapped across every corner of American life.

Trump’s proposed tariffs – essentially an external sales tax to U.S. trading partners that we pay one way or another – face a July 9 deadline.

During a press conference at the NATO meetings, Trump rehashed his displeasure over high interest rates, calling Powell a “very stupid person” whose “terrible" decisions are costing the country up to $1 trillion.

Both Fed and market watchers had forecast that the next probable rate cut could appear at the central bank’s September FOMC meeting.

Two Federal Governors, Christopher Waller and Michelle Bowman, both said this week the rate cut could be as early as July if the tariff inflation proved to be short-term without further weakening the jobs numbers.

Waller and Bowman are Trump appointees, as is Powell.

Related: Fed official makes surprising interest rate cut prediction

The widely watched CME FedWatch tool puts the likelihood of a July cut in the Federal Funds Rate at 24.8% June 25, up from 22.7% June 23.

At the June Fed meeting, Powell said the post-pandemic economy was resilient and stable, but the risk of tariff inflation on prices in the nation’s supply chain prompted a “wait-and-see” approach to holding rates steady.

He repeated those assertions to the House and Senate panels this week, adding that the expected inflation from the tariffs would likely bubble up into economic indicators for June and July.

Powell holds firm on tariff inflation impact

Senators had more than monetary policy in mind for Powell during his appearance. They peppered him with questions on bank deregulations, the Treasury market, the stability of the dollar and future considerations of community banks and credit unions.

Oh, and alleged overruns on renovations of both ailing Fed buildings in Washington. (Rest assured, the beehives have been axed from that budget.)

There was also a great deal of noise around Trump’s tax reconciliation bill being considered by the Senate before going back to the House.

Powell answered the regulatory questions and repeatedly passed on the reconciliation bill, saying fiscal policy was outside of the Fed’s independent mandate.

More Federal Reserve:

• Fed interest rate cut decision resets forecasts for the rest of this year
• Federal Reserve prepares strong message on long-term interest rates
• Fed official revamps interest-rate cut forecast for this year

Once the tariffs resurfaced, Powell told the senators essentially the same answers he had provided the House members the day before: that the tariff inflation variables are a learning experience for the Fed.

“Inflation is in a pretty good place,” coming down closer to 2%, he said.

“It’s still a very solid economy. We are watching the labor market very closely, as we always do, and a couple of things in particular. One is just a very low hiring rate which goes with a low layoff rate," Powell said. 

"But if we were to start to see layoffs, we would see unemployment go up quickly so we are watching that. But the labor market has remained solid,’’ Powell added.

The Fed chair was presenting the bi-annual Monetary Policy Report to Congress.

Trump in recent months has threatened to install a “shadow” chair until Powell resigns or leaves in May 2026. In addition to musings that perhaps Trump might appoint himself (which he legally can’t), Treasury Secretary Scott Bessent is also a recent frontrunner to join the Fed board.

While at the NATO press conference, the president said he has been interviewing three to four individuals about assuming the Federal Reserve chair, but did not name the candidates.

Powell has said he has no intention to resign early. When quizzed by multiple members of both Houses about Trump’s barbs and threats, Powell simply referred to the current independence of the Fed from executive or legislative control.

The next Fed meeting is July 29-30.

And remember, no bees will be on site. 

Related: Fed official revamps interest-rate cut forecast for rest of this year