U.S. Fed to wait on rate cuts due to tariff impacts, consumer confidence declines

The U.S. Federal Reserve (Fed) will continue to wait and see the impact of tariffs before deciding on further interest rate cuts, the Fed Chair Jerome Powell told lawmakers on Tuesday.

Despite President Donald Trump's demand on immediate rate cuts, Powell said the Fed needs more time to see if tariffs push up domestic inflation.

"For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance," Powell said in testimony before the House Financial Services Committee.

Powell said that Fed policy isn't meant to endorse or criticize the Trump administration's approach to trade, only to deal with an inflation impact that the Fed and forecasts more broadly expect to gather momentum over the rest of the year.

"We aren't commenting on tariffs," Powell said. "Our job is keeping inflation under control, and when policies have short- and medium-term, meaningful, implications, then inflation becomes our job."

He pointed out that the increases in tariffs are likely to lead to higher prices and weigh on economic activity, saying "we should start to see this over the summer, in the June number and the July number...If we don't we are perfectly open to the idea that the pass-through (to consumers) will be less than we think, and if we do that will matter for policy."

"I think if it turns out that inflation pressures remain contained we will get to a place where we cut rates sooner than later," he said.

Last week, the Fed's committee voted to keep the target range for the federal funds rates unchanged at 4.25 percent to 4.5 percent, while projecting higher unemployment and inflation for 2025 to 2027.

"We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks," said Powell.

Consumer confidence declines

The U.S. gross domestic product (GDP) fell slightly in the first quarter, and consumer spending growth slowed. Surveys on households and businesses show that uncertainty over economic outlook has intensified in recent months and declined U.S. consumer confidence reflects concerns about trade policy.

A report released last week by the TransUnion, an American consumer credit reporting agency, showed that U.S. consumers' confidence in their financial situation is deteriorating as tariff policies fuel concerns about rising prices.

Data showed that among the almost 3,000 people polled in May, 27 percent were pessimistic about family financial situation in the next 12 months, an increase from 21 percent in the fourth quarter of last year.

"There's a very clear correlation between that pessimism and the uncertainty that's come out of the tariffs," said Charlie Wise, head of global research and consulting at TransUnion.

In addition, inflation was listed as the top concern by 81 percent of respondents in the survey, while concerns about the recession rose to the highest level in two years.

(With input from agencies)