Federal Reserve Chair Jerome Powell stated Tuesday that the central bank is prepared to keep interest rates unchanged as it evaluates ongoing economic trends, according to his prepared testimony for the Semiannual Monetary Policy Report to Congress.
Powell said the U.S. economy remains “fundamentally solid,” despite lingering uncertainties. He pointed to a low unemployment rate of 4.2% in May and described the labor market as generally balanced and aligned with full employment.
He also noted that while inflation has dropped substantially from its 2022 peak, it still exceeds the Fed’s 2% target. Over the past year, headline personal consumption expenditures (PCE) inflation rose 2.3%, while core PCE—which excludes food and energy—was up 2.6%.
Powell acknowledged a recent uptick in short-term inflation expectations, which surveys attribute mainly to anticipated tariffs. However, he said longer-term inflation expectations remain consistent with the Fed’s 2% objective.
The Federal Open Market Committee (FOMC) has kept the federal funds rate in the 4.25% to 4.5% range since early this year. Powell stressed that the Fed is in a strong position to be patient and wait for clearer economic signals before adjusting policy.
On the topic of trade policy, Powell cautioned that new tariffs could raise prices and hinder growth, though he suggested such effects might represent a temporary price level shift rather than a lasting inflation trend. He reaffirmed the Fed’s resolve to ensure one-off price increases don’t translate into sustained inflation.
He added that U.S. GDP declined slightly in the first quarter, largely due to fluctuations in net exports as firms rushed to import goods ahead of potential tariffs. However, core private domestic demand continued to grow at a solid 2.5% pace.
