Powell reaffirms cautious Fed stance amid solid economy and tariff uncertainty 📃📌

• Labor market conditions remain strong—average payroll gains of 124 k per month and 4.2 % unemployment—with wage growth cooling yet still above inflation.
• Higher tariffs are likely to lift prices and weigh on activity; the Fed must stop a one-time price jump from feeding a broader inflation cycle.
• Policy stance: funds rate unchanged, balance-sheet runoff slowing; FOMC feels “well-positioned” to wait for clearer data before cutting or hiking.
• Recent remarks from Governors Waller and Bowman signal openness to easing as soon as July, but Powell’s testimony keeps a data-dependent, wait-and-see mode.

Federal Reserve Chair Jerome Powell told Congress that the U.S. economy remains “solid,” with unemployment low and private domestic demand steady, but he highlighted elevated uncertainty—especially around trade policy and tariffs—that could reduce future growth. Inflation has fallen sharply from its 2022 peak yet is still remaining a bit above the Fed’s 2% target, while shorter-term inflation expectations have ticked up on tariff concerns. A robust labor market continues to narrow long-standing demographic gaps in jobs and wages, and—crucially—Powell judged that today’s labor market is not a source of alarming wage-price pressures.

On policy, the Federal Open Market Committee has left the federal-funds target at 4.25-4.50% since January and is comfortable “for the time being” watching incoming data before considering any adjustments. Powell stressed that the Fed’s top job is to keep longer-run inflation expectations anchored so a one-time price rise from tariffs does not morph into persistent inflation. The Committee will balance that goal with its maximum-employment mandate, noting that true job-market strength is impossible without price stability.

Market reaction

Major US equity indices trimmed earlier gains after Powell’s remarks, and short-term interest-rate futures edged lower as traders saw a slightly smaller probability of a July rate cut. However, the market reaction is not significant at the moment.