Federal Reserve Chair Jerome Powell is adopting a cautious stance as he navigates through economic uncertainty, with recent developments hinting at potential policy adjustments. Following a pivotal policy meeting, Powell indicated that he might wait for more comprehensive data on inflation and employment before offering further guidance in his speeches. His concern primarily centers around the impact of tariffs, though he has yet to observe significant effects in the current data.
During the meeting, Powell addressed various economic challenges, emphasizing the potential threat of stagflation and the ongoing uncertainty surrounding tariffs. He suggested that the Federal Reserve is prepared to intervene with additional rate cuts should the U.S. economy show signs of slowing down due to these uncertainties. Notably, Powell proposed another half percentage point rate cut for 2025 and announced changes to the pace at which the Federal Reserve is reducing its bond holdings.
The market responded positively to Powell's remarks, as evidenced by a rally in stocks that reached session highs following his speech. Additionally, the CME FedWatch Tool recorded a slight increase in the market odds of a third quarter-point rate cut this year, rising to 31.5% from 28.7%.
Powell's ongoing concerns about tariffs and their potential impact on the economy have been a focal point of his recent communications. He is closely monitoring the situation to determine if the current growth slowdown may evolve into a more severe economic downturn. Powell's cautious approach reflects his commitment to ensuring stability in the face of complex global economic dynamics.
"The waiting game isn't done yet. Jerome Powell is likely worried about the impact of tariffs but he hasn't seen it yet in the data. Jerome Powell may want to wait for more inflation and jobs numbers and then give more guidance in speeches," stated David Russell, global head of market strategy at TradeStation.
The Federal Reserve's future actions remain contingent on forthcoming economic indicators, which will help determine the need for further intervention. As Powell continues to assess the situation, his prudent strategy underscores the delicate balancing act required to maintain economic stability amid external pressures.