Powell acknowledges difficulty of assessing tariff impact on US inflation

Chair of the US Federal Reserve Jerome Powell told the Senate Banking Committee that it is very difficult to predict the exact impact of import tariffs on inflation in the country. According to him, macroeconomic models account for the effects of trade policy, but they do not always capture the full picture.

Although the Fed factors in external trade elements in its calculations, the regulator is essentially unable to determine how significantly tariffs will affect domestic prices. Senators raised the issue during the hearing, but Powell emphasized that the main focus remains on data and current trends.

Inflation and the budget

Powell also noted that government fiscal policy can influence inflationary processes. However, he refrained from making specific comments and did not draw a direct link between increased public spending and inflation.

What the senators discussed:

• potential risk of rising inflationary pressure due to a growing budget deficit;
• criticism of the latest version of the Trump administration's budget proposal;
• questions about the impact of public investment on national debt levels.

Despite these concerns, the Fed chairman stated that the budget deficit is not a primary factor when setting interest rates. The main priorities remain inflation indicators and overall economic conditions.

Dollar, bonds and interest rate outlook

Speaking to the Senate, Powell reaffirmed the dollar’s role as the world’s reserve currency, while noting there is no clear evidence that it is currently overvalued. Regarding the bond market, he pointed out that it is functioning steadily and without disruptions.

In a report submitted the day before to the House Financial Services Committee, Powell said that:

• the Fed is prepared to maintain its current monetary policy and “wait for more clarity” on key economic indicators;
• any decision on rate adjustments will be based on fresh data and an updated assessment of risks.

The next Federal Reserve meeting is scheduled for July 29–30. Analysts expect the benchmark rate to remain unchanged following the meeting, but potential cuts later this year — in autumn or by December — are considered likely.