In his semiannual testimony before Congress on June 24, 2025, Federal Reserve Chair Jerome Powell struck a cautious and measured tone, reiterating the Fed’s commitment to a “wait-and-see” approach before making any adjustments to interest rates. Despite softening inflation indicators and a stable labor market, Powell emphasized the importance of gathering more data before shifting the current policy stance.

Policy Outlook: No Immediate Cuts, Patience Required

Powell made it clear that the Fed is in a good position to observe economic developments before acting. “We are well positioned for the time being to wait and see more clearly where the economy is headed before adjusting policy,” he stated. This stance echoed the Fed’s June dot plot, which suggested two rate cuts later this year—but only if inflation continues to trend down sustainably.

Importantly, Powell provided no immediate signal that a rate cut is imminent. Market participants, who were hoping for a clearer timeline, received a consistent message: patience. The Fed prefers to avoid premature policy moves, particularly in a macroeconomic environment that remains uncertain.

Tariffs: A New Inflationary Threat

Powell addressed the recent wave of tariffs imposed by the Trump administration on a wide array of imports from China, Europe, and other countries. He warned that “increased tariffs are likely to push up on inflation and weigh on economic activity.” This statement underscored the Fed’s concern that external cost pressures—particularly those driven by trade policy—could complicate the path to price stability.

Although core inflation has eased, tariffs represent a supply-side shock that could reverse progress. Powell’s cautious tone suggested that the Fed will be watching how these trade actions feed into inflation expectations and consumer behavior before taking policy action.

Labor Market: Resilient, but Signs of Strain Emerge

Powell praised the strength of the labor market, stating that it continues to support economic stability and has contributed to narrowing demographic disparities in employment and earnings. “Conditions in the labor market have remained solid,” he said, reaffirming the Fed’s dual mandate focus.

However, recent data paint a more nuanced picture. As of May 2025, the number of employed Americans moving out of the labor force surged to levels not seen in years—crossing 1 million in a single month. While Powell did not address this directly, it could signal a weakening in labor market confidence or demographic shifts that the Fed may need to consider in coming months.

Inflation Metrics: Lower, but Not Yet Enough

Inflation data for May 2025 showed the Consumer Price Index (CPI) rising 2.4% year-over-year, with the Core CPI (excluding food and energy) at 2.8%. Both figures are trending downward but remain above the Fed’s 2% target. Powell acknowledged this, stating, “Inflation has eased but remains somewhat elevated.”

The Fed’s reluctance to act aggressively is therefore rooted in caution. While the disinflationary trend is clear, external risks—from tariffs to global supply constraints—could reignite price pressures. Powell reiterated that policy adjustments will only come when the committee has sufficient confidence that inflation is sustainably returning to 2%.

Market Response: No Surprises, Steady Outlook

Financial markets reacted with mild restraint to Powell’s remarks. Equities closed mixed, Treasury yields held steady, and the dollar maintained strength against major peers. Investors appeared to take Powell’s messaging in stride—there were no surprises, but also no new signals that might drive risk appetite.

Traders are now largely pricing in the possibility of a first rate cut in September or later, contingent on additional disinflation in June and July. As one analyst noted, “The Fed is on hold—not because they don’t want to ease, but because they can’t afford to misstep.”

Forward-Looking Risks: Data Will Drive Decisions

Looking ahead, Powell stressed the importance of future data in shaping policy. The Fed is particularly focused on inflation expectations, labor force participation trends, and any signs of weakening demand. The challenge lies in balancing these signals while maintaining both sides of the Fed’s dual mandate—price stability and full employment.

One complicating factor is the political environment. Former President Trump has called for a 100-basis-point rate cut, putting public pressure on the central bank. Powell, however, made no reference to such calls and reaffirmed the Fed’s independence and data-driven approach.

Bottom Line: The Fed Will Not Rush

Powell concluded his testimony with a reminder that the U.S. economy remains “solid despite elevated uncertainty.” His remarks signal a deliberate, risk-averse strategy by the central bank—one that prioritizes clarity over speed. The message to markets is simple: The Fed is not ready to cut, and any change in direction will be based on concrete, sustained progress in inflation and labor market conditions.

For investors and policymakers alike, the coming months will be critical. With inflation still above target, labor market data sending mixed signals, and geopolitical tensions on the rise, the Fed will be navigating a narrow path. Until then, “wait and see” remains the name of the game.