Federal Reserve chair Jerome Powell said the Trump administration’s tariff war will likely drive inflation higher and slow the US economy but dismissed the prospect of an imminent interest rate cut as those risks grow.
The Fed chief described the extent of Trump’s tariffs as “significantly larger than anticipated” in remarks that sent US stocks plunging as fears grew of a sharp economic downturn.
But even the risk of stagflation – high inflation coupled with a sluggish economy and rising unemployment – likely won’t push the Fed into a premature rate cut. Powell said it would “wait for greater clarity” before potentially bringing rates lower, although he acknowledged a dilemma could arise if inflation spikes while the economy also contracts.
Do not expect a rate cut soon. Powell clearly remains in no mood to slash rates just yet. “For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” he said.
The average 30-year fixed mortgage rate spiked 20 points on the back of bond market chaos, surging to 6.99%, while the 15-year average fixed rate was up 18 points to 6.27%.
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