Powell reiterates Fed will wait for more data before cutting rates

By Francesco Canepa and Howard Schneider

SINTRA, Portugal, July 1 (Reuters) - U.S. Federal Reserve Chair Jerome Powell on Tuesday reiterated the U.S. central bank plans to "wait and learn more" about the impact of tariffs on inflation before lowering interest rates, again setting aside President Donald Trump's demands for immediate and deep rate cuts.

"We're simply taking some time," Powell said at a central bank gathering in Portugal, a day after Trump sent him a handwritten missive noting how low other central banks had cut rates and suggesting the U.S. needed to move. "As long as the U.S. economy is in solid shape, we think that the prudent thing to do is to wait and learn more and see what those effects might be."

Yet Powell also declined to rule out a possible rate cut at the Fed's upcoming July 29-30 meeting, prompting investors to slightly boost the possibility of a reduction at that session and shifting focus to a jobs report to be issued on Thursday and new inflation data coming in two weeks, both covering the month of June.

Powell noted that a majority of Fed officials in recent projections do expect to lower the benchmark interest rate later this year, and are closely attuned to whether inflation increases this summer as policymakers and many economists expect.

"It's going to depend on the data...We are going meeting by meeting," Powell said. "I wouldn't take any meeting off the table or put it directly on the table. It's going to depend on how the data evolve.”

July 9, in addition, is the deadline for the possible imposition of higher global tariffs.

The Fed is facing a complicated moment, weighing sometimes conflicting data that could leave officials faced with both rising unemployment and rising inflation, the worst of both worlds for a central bank tasked with maintaining both stable prices and maximum employment.

Uncertainty over trade and other administration policies has left businesses also unsure of what to do, and the Fed's decision-making has been under virtually daily assault from a president eager to install his own chair when Powell leaves the Fed's top job next May.

At the Sintra gathering, an annual forum sponsored by the European Central Bank and akin to the Fed's own yearly gathering at Jackson Hole, Wyoming, Powell got at least a momentary reprieve.

Asked about Trump's barrage of insults, Powell's comment that the Fed was focused "100%" on its inflation and jobs target drew applause from the audience and from the heads of the ECB, the Bank of England and other central banks who joined him onstage for a panel discussion.

Central bank independence from the lobbying of elected officials, at least in the setting of interest rates, is considered key to keeping inflation under control.

Powell said his message to whomever Trump chooses to succeed him in a little over 10 months would be "we're trying to deliver macro stability, financial stability, economic stability for the benefit of all the people. If we're going to do that successfully, we need to do it in a completely non-political way, which means we don't take sides. We don't play one side against the other."

It remains unclear how long the Fed may have to wait to gain the clarity it needs to resume reducing interest rates. The central bank cut steadily last year beginning in September - something Trump alleges was politically motivated - but stopped in December after lowering the benchmark rate a full percentage point to the current 4.25% to 4.5% range.

Powell has made no secret of why.

"In effect, we went on hold when we saw the size of the tariffs...and essentially all inflation forecasts for the United States went up materially as a consequence," Powell said.

The central bank targets inflation of 2%, and recent readings remain above that level now for the fourth year running following a spike in prices during the COVID-19 pandemic.

While officials are open to lowering rates if inflation proves lower than expected or the job market weakens, Powell said there is nothing in the data so far indicating a need to move fast or soon.

Investors had increased the estimated probability of a July rate cut to about one in four after Powell didn't explicitly rule it out, then drove chances back down to close to one in five after data on U.S. job openings came in stronger than expected.

"If you look at the economy, growth has been solid, the labor market is solid and still at historically low levels of unemployment," Powell said. "It's not an economy that feels like it's suffering from very tight monetary policy."