Key Takeaways
Let me lay this out for you directly: Federal Reserve Chair Jerome Powell is scheduled to testify before Congress on Tuesday. You should know he'll likely face questions about the Fed's choice to keep interest rates steady, the potential economic fallout from the US attack on Iran, and the Federal Reserve's independence from presidential influence. A recent Fed report confirms the economy is holding strong on both inflation control and low unemployment, aligning with the Fed's dual mandate.
Powell's Upcoming Testimony
I'm telling you, Powell's testimony to the House Financial Services Committee will cover the Fed's semi-annual report released last Friday. This report echoes what Fed officials have been saying for months: they're in a wait-and-see mode on the benchmark interest rate. This is Powell's first public outing since the policy committee decided to hold the federal funds rate at 4.25% to 4.5%, unchanged since December. Remember, this rate affects borrowing costs across loans, and cutting it could stimulate the economy, but Powell and his team are holding back due to risks from President Trump's tariffs potentially reigniting high inflation.
The Fed's Wait-And-See Approach to Interest Rates
In the report, the Fed reiterates its plan to monitor tariff impacts before considering rate cuts. The Fed's core tasks are keeping inflation low and employment high, and recent data shows inflation easing toward the 2% target while unemployment stays historically low. As the report states, the current policy stance positions the Fed to wait for clearer data on inflation and activity, assessing incoming information, outlook, and risks before any adjustments to the federal funds rate.
The Fed's Independence and Trump's Attacks
While economic data hasn't pushed for rate cuts, President Trump has. Last week, he ramped up calls for the fed funds rate to drop to 1% or 2%—a move typically reserved for recessions—and renewed threats to fire Powell via social media. The Federal Reserve operates independently from the White House; the president can appoint leaders only at term ends, and the Supreme Court has upheld this status. So far, bipartisan support in Congress backs this independence, with proposals to strengthen it through legislation.
How the Iran Attack Changes the Outlook
Powell will also address how Saturday's US bombing of Iran alters inflation prospects. The US joining the Israel-Iran war adds volatility, potentially disrupting oil supplies and spiking gas prices, especially if Iran blocks the Strait of Hormuz. Before the strikes, the Fed report noted modest oil price increases from Israeli actions, with futures suggesting limited long-term risks. As of Monday, oil futures rose 1.3% from the prior week. If escalation drives up gas prices alongside tariff effects, it could squeeze consumers and slow the economy, possibly pushing inflation above 5% while wage growth lags at 3.5%, as noted by economists.
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