Washington (Reuters) – Monetary policy decisions of the American Federal Reserve (Fed) are not intended to pass a political judgment on the trade measures of US President Donald Trump but to manage the consequences on the increase in customs duties, said on Tuesday before the US Congress Jerome Powell, president of the institution.

“We are not for customs tariffs,” said Jerome Powell before the House of Representatives’s Financial Affairs Committee, led by Les Républicains, explaining that Fed’s work is to master inflation.

Questioned by the members of the Commission on the reasons why the rates were not lowered as Donald Trump asked, the president of the Fed indicated that the prospects for increasing inflation during the year were widely shared by economists and that the rates could be lowered if the inflationary pressures are contained.

“We don’t need to be in a hurry,” he said.

“All the professional forecastists I know (…) expect a significant increase in inflation during this year,” he said, adding that the central bank needed more time to see if the increase in customs duties led to an increase in inflation before considering a drop in rates.

“The increase in customs duties this year is likely to increase prices and weigh on economic activity,” said the monetary policy manager.

Adjust policy according to the Economy Evolution

“The effects on inflation could be short -lived, reflecting a punctual change in the price level. It is also possible that the inflationary effects are more persistent … For the moment, we are well placed to wait until we know more about the probable evolution of the economy before considering adjusting our policy”.

Following these remarks, the markets changed their rate reduction anticipations, decreasing the possibility of a decrease in July and increasing that of a drop in September before a second drop later in the year.

The Fed maintained in June the rate of rate of “Fed Funds” in a range of 4.25% to 4.50% to contain inflation, providing a reduction of a quarter of percentage points in 2026, followed by an identical drop in 2027.

Two Fed governors appointed by Donald Trump have said in recent days that rates could drop from July due to the maintenance of inflation in the target zone while other officials said that it was necessary to assess the consequences of the prices of the American president.

Jerome Powell, who stressed that the US economy remained “solid” with a low unemployment rate, also said it was open to the possibility that the consequences of customs duties on inflation are not as significant as it is fear.

According to him, the consequences of customs duties on prices should begin to see themselves from June and in the coming months.

“If this is not the case, we will take it into account,” he said.

(Written by Howard Schneider; Bertrand de Meyer, edited by Augustin Turpin)

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