• Federal Reserve Chair Jerome Powell expects tariff-driven inflation to be temporary
  • The Fed cut interest rates by 25 basis points to 3.75%-4%, citing labor market concerns
  • Policymakers emphasize cautious approach amid limited economic data due to government shutdown

Federal Reserve Chair Jerome Powell stated Tuesday that the central bank's "reasonable base case" is that the inflationary effects of recent tariffs will be short-lived, even as the Fed cut interest rates for the second time this year.

The Federal Open Market Committee lowered its benchmark rate by 25 basis points to a target range of 3.75% to 4%, citing a slowing labor market and inflation that remains slightly above the Fed's 2% target. The move comes amid what Powell described as "uncertain" economic conditions, with policymakers relying on limited data due to an ongoing U.S. government shutdown that has delayed key economic reports.

"Recent goods price increases are primarily due to tariffs rather than underlying inflation trends," Powell said during his press conference, emphasizing that most longer-term inflation expectations remain anchored. He noted that while tariffs have caused visible upticks in certain goods categories, the Fed does not anticipate these price pressures will sustain long-term upward momentum.

Fed officials described their approach as cautious and meeting-by-meeting, with the policy path heavily dependent on incoming data. The current monetary policy stance is now considered more neutral, walking a fine line between combating inflation and supporting employment growth.

When pressed about the tariff impacts, Powell acknowledged the immediate price effects but maintained the central view that markets would adjust over time. "Historical experience suggests these effects tend to be temporary," he said, referencing previous episodes of trade tensions.

The Fed's latest economic projections show policymakers remain divided on the appropriate path forward, reflecting the challenging balancing act between a cooling labor market and inflation that, while moderating, continues to run above target.

Efforts to reach the White House for comment on the Fed's tariff assessment were unsuccessful Tuesday evening. A Treasury Department spokesperson declined to comment specifically on Powell's remarks when contacted.

Correction: An earlier version of this article misstated the timing of the Fed's previous rate cut. It was the second cut this year, not the first.