Fed Keeps Rates Steady as Powell Warns of Economic Risks

Federal Reserve Chair Jerome Powell stated on Tuesday that the central bank will maintain its current interest rate policy, citing stable economic conditions and persistent inflation. Speaking before the Senate Banking Committee, Powell emphasized that while inflation remains above the Fed’s 2% target, the job market remains strong, allowing the Fed to hold off on any immediate changes.

“With the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” Powell said in his remarks.

Inflation and Economic Uncertainty

Powell’s testimony comes as the U.S. economy navigates ongoing inflation challenges and shifting government policies. The Trump administration’s moves—such as imposing tariffs on steel and aluminum and proposing deep spending cuts—have added uncertainty to the economic outlook.

The Fed Chair avoided direct comments on Trump’s policy changes but stressed that the central bank is “well positioned to deal with the risks and uncertainties that we face.”

Political Tensions Over Federal Reserve’s Role

During the hearing, Powell faced questions from lawmakers on a range of issues. Senator Elizabeth Warren urged him to ensure the Fed continues funding the Consumer Financial Protection Bureau (CFPB), which was recently ordered to halt operations by the Trump administration.

“Do not make the Federal Reserve an accomplice to this illegal act,” Warren said.

On the other hand, Senator Tim Scott raised concerns over “debanking,” a practice where banks shut down accounts linked to cryptocurrency businesses. Powell acknowledged the concerns and said it was “fair to take a fresh look at debanking.”

Future Rate Cuts Uncertain

The Federal Reserve previously projected two rate cuts for 2024, but many analysts now expect fewer reductions. Economists from Morgan Stanley predict just one rate cut in 2025, while Bank of America analysts believe the Fed’s rate-cutting cycle is over.

“The cautious and prudent step is to hold the rate where it is for some time,” said Fed Governor Adriana Kugler, citing ongoing policy uncertainties and inflation risks.

Impact on Borrowing Costs

With the Fed holding interest rates steady, borrowing costs for mortgages, auto loans, and credit cards are likely to remain high. However, mortgage rates are also influenced by Treasury bond yields, which fluctuate independently of Fed decisions.

Soft Landing for the Economy?

Despite fears that aggressive rate hikes would trigger a recession, the U.S. economy has remained resilient. Senator John Kennedy praised Powell and the Fed for managing inflation, which has dropped from 9.1% in June 2022 to 2.9% today.

“The fact is, knock on wood, we have experienced a soft landing,” Kennedy said.

As Powell continues his testimony, all eyes remain on the Fed’s next steps in shaping the economic landscape.