Powell Signals Fed Will Hold Rates High Amid Tariff Uncertainty: Implications for Energy Projects

Federal Reserve Chair Jerome Powell today emphasized a cautious approach to monetary policy, stating the Fed is prepared to “wait and see” before adjusting interest rates, currently set at a range of 4.25% to 4.5%. Speaking at the Economic Club of Chicago on April 16, 2025, Powell underscored the Fed’s apolitical stance, saying, “We are not political,” and highlighted the need for clarity on how President Donald Trump’s tariff policies will shape inflation and economic growth. This decision comes amid heightened economic uncertainty, with tariffs generating billions in revenue but showing limited immediate impact on consumers. For the energy sector, sustained high interest rates pose challenges for project financing, particularly for capital-intensive renewable and infrastructure developments, while tariff revenues and trade dynamics introduce additional complexities.

Powell said almost the same things today in the Fed meeting on June 18, 2025, and had some questions about being politically motivated by not dropping rates with the current inflation numbers coming down. He still seems politically motivated, and people need to be reminded that the Fed is a for-profit organization that is not a U.S. government agency. And they have “misplaced” trillions of U.S. dollars overseas without the ability to track who it was sent to.

Is Oil & Gas Right for Your Portfolio?

Historical Context: Fed Rate Hikes and Cuts

To understand the current policy, it’s worth revisiting the Federal Reserve’s recent history of rate adjustments, which have significantly influenced energy markets:

2022–2023 Rate Hikes: Facing post-pandemic inflation peaking at 9.1% in June 2022, the Fed embarked on an aggressive tightening cycle. The federal funds rate rose from near-zero to a range of 5.25%–5.5% by July 2023, the highest in 22 years. Key hikes included:
- March 2022: +0.25% (to 0.25%–0.5%)
- May 2022: +0.5% (to 0.75%–1%)
- June, July, September, November 2022: +0.75% each (reaching 3.75%–4% by November)
- February, March, May, July 2023: +0.25% each (to 5.25%–5.5%)
These hikes increased borrowing costs, impacting energy projects by raising the cost of capital for exploration, drilling, and renewable energy installations. For example, offshore wind projects, which require significant upfront investment, faced delays as financing costs soared.
2024 Rate Cuts: As inflation cooled to around 2.5%–3% by mid-2024, the Fed shifted gears, cutting rates three times:
- September 2024: -0.5% (to 4.75%–5%)
- November 2024: -0.25% (to 4.5%–4.75%)
- December 2024: -0.25% (to 4.25%–4.5%)
These cuts provided some relief to energy companies, lowering debt servicing costs and enabling marginal projects to move forward. However, the cuts were modest, and the current rate range remains restrictive compared to the near-zero rates of 2020–2021.

Powell’s latest remarks suggest no immediate cuts are planned, as the Fed monitors the interplay of tariffs, inflation, and growth. This stance could prolong elevated borrowing costs, with significant implications for the energy sector.

Impact on Energy Projects

High interest rates directly affect energy projects, which often rely on debt financing for development and expansion. Here’s how the Fed’s decision could ripple through the industry:

Renewable Energy Challenges: Solar, wind, and hydrogen projects require substantial upfront capital. At 4.25%–4.5%, borrowing costs remain elevated, increasing the cost of financing new installations. For instance, a 100 MW wind farm with a $150 million loan at 5% interest (tied to the federal funds rate) incurs roughly $7.5 million in annual interest, compared to $4.5 million at 3% interest during low-rate periods. This squeezes project margins, potentially delaying or canceling developments, especially in emerging technologies like green hydrogen.
Oil and Gas Exploration: High rates increase the cost of drilling and infrastructure projects. Smaller independent producers, reliant on loans for exploration, may scale back operations, particularly in high-cost regions like the Permian Basin. However, robust oil prices (currently around $70–$80 per barrel for WTI) could offset some financing pressures, supporting cash flow for larger firms.
Energy Infrastructure: Pipelines, LNG terminals, and grid upgrades face higher hurdle rates for investment. For example, LNG export facilities, critical to meeting global demand, require billions in financing. Sustained high rates could slow project timelines, as seen with some Gulf Coast LNG projects delayed during the 2022–2023 tightening cycle.
Consumer Demand and Electrification: Higher interest rates increase borrowing costs for consumers and businesses, potentially dampening demand for energy-intensive projects like electric vehicle (EV) infrastructure. Auto loan rates, influenced by the federal funds rate, have risen to around 6%–8%, which could slow EV adoption and related charging station investments.

Despite these challenges, the energy sector has shown resilience. Strong global demand for oil and gas, coupled with policy support for renewables, has kept investment flowing. However, prolonged high rates could tip the balance, particularly for projects with long payback periods.

Tariffs: Revenue Gains, Limited Consumer Impact (So Far)

President Trump’s tariffs, announced in early 2025, have reshaped trade dynamics, with levies as high as 20% on Chinese goods, 25% on steel and aluminum, and 25% on certain Canadian and Mexican imports. These tariffs have generated significant revenue—estimated at tens of billions of dollars in Q1 2025 alone—bolstering federal coffers. For the energy sector, tariff revenues could indirectly support infrastructure spending or tax incentives for domestic production, such as drilling or renewable subsidies.

Notably, the consumer impact has been muted thus far. Powell noted that while tariffs are “highly likely to generate at least a temporary rise in inflation,” long-term inflation expectations remain anchored. A surge in imports before tariffs took effect (Q1 2025 GDP was weighed down by pre-tariff buying) suggests businesses absorbed some costs by stockpiling. Surveys indicate that only 55% of manufacturing firms plan to pass tariff costs to consumers, with many foreign producers absorbing costs to maintain market share.

In the energy market, tariffs on steel and aluminum have increased costs for pipelines and wind turbine components, but these have not yet translated into widespread price hikes for consumers. Gasoline and electricity prices remain stable, supported by ample domestic supply and moderating global oil prices. However, Powell cautioned that persistent tariffs could lead to “more persistent” inflationary effects, potentially raising energy costs if supply chains tighten.

Balancing Act: The Fed’s Dual Mandate

Powell’s remarks highlight the Fed’s delicate balancing act between its dual mandates of price stability (2% inflation target) and maximum employment. Tariffs pose a “challenging scenario,” as they could simultaneously drive inflation (by raising input costs) and slow growth (by reducing consumer spending and business investment). If inflation persists above 2.8% (February 2025 core PCE rate), the Fed may maintain or even raise rates, further straining energy project economics. Conversely, if tariffs trigger a sharp economic slowdown—Goldman Sachs pegs recession odds at 45%—the Fed could cut rates to stimulate growth, easing financing pressures.

For now, the economy remains “in a solid position,” with unemployment near 4.2% and consumer spending up 0.7% in March 2025. This resilience gives the Fed room to wait, but energy companies must navigate uncertainty as they plan investments.

Looking Ahead: Energy Sector Strategies

Energy firms can adapt to the Fed’s high-rate environment and tariff uncertainty by:

Optimizing Capital Allocation: Prioritize high-return projects, such as infill drilling in proven oilfields or modular solar installations, to minimize financing needs.
Hedging Input Costs: Use futures contracts to lock in steel and aluminum prices, mitigating tariff-related cost spikes.
Leveraging Tariff Revenues: Advocate for federal reinvestment of tariff proceeds into energy infrastructure, such as grid modernization or LNG export capacity.
Monitoring Consumer Trends: Track consumer spending and inflation data to anticipate demand shifts, particularly for EVs and renewable energy.

Powell’s commitment to a data-driven, apolitical approach underscores the Fed’s focus on maintaining its non-partisan stance and promoting stability, yet it has reduced rates under Democratic leadership when the same conditions applied. When asked about his commitment to data today, he did not have a good answer, and the market responded negatively.

While high interest rates pose challenges to energy project economics, the sector’s resilience and the potential for tariff revenues to fund infrastructure offer opportunities. As tariffs evolve and their impacts become clearer, the energy industry must remain agile, balancing cost pressures with strategic investments to meet global demand.

Personally I believe the Fed should be removed and abolished along with the UN, the WHO, and other organizations that have tried to take the United States down. The Fed has “Lost” an estimated 4 trillion dollars, and when privately held organizations are unprofitable, they go out of business or are fired. In the case of the United States Fed, they need to be fired for not serving American First interests.

Sources: