Powell Reaffirms Patient Stance on Interest Rates
Federal Reserve Chairman Jerome Powell stated on Friday that the central bank remains in a wait-and-see mode before making further interest rate adjustments. Speaking at the U.S. Monetary Policy Forum in New York, Powell emphasized that the Federal Reserve (Fed) holds rates steady as it assesses the impact of President Donald Trump’s economic policies.
“The White House is implementing significant policy changes in trade, immigration, fiscal policy, and regulation,” Powell said. “The net effect of these changes will determine the economy’s trajectory and our monetary policy decisions.”
Powell underscored that uncertainty remains high and that the Fed is focused on filtering relevant economic signals from market noise. While market expectations lean toward rate cuts, Powell’s remarks suggest that the Fed is in no rush to lower borrowing costs.
Market Expectations vs. Federal Reserve’s Stance
Investors have priced in three 0.25% rate cuts by the end of 2025, beginning in June, according to the CME Group’s FedWatch tool. However, Powell reiterated that policy is not on a preset course, and the central bank will adjust based on economic data.
The Fed’s preferred inflation gauge shows a 12-month rate of 2.5%, or 2.6% excluding food and energy, above its 2% target. Powell acknowledged the difficulty in managing inflation but expressed confidence that it will stabilize over time.
Economic Indicators Signal Mixed Outlook
On the same day, the Labor Department reported a 151,000 job gain for February, slightly below the expected 160,000. The unemployment rate edged up to 4.1%, indicating a cooling labor market.
“Wages are growing faster than inflation and at a sustainable pace,” Powell noted. Average hourly earnings increased by 0.3% in February, reflecting a 4% annual rise.
Stock Market Reacts to Powell’s Comments
Following Powell’s speech, the S&P 500 (NYSE:SPX) rose 0.6% to 5,770.20, while the Nasdaq Composite (NASDAQ:IXIC) gained 0.7%. The Dow Jones Industrial Average (NYSE:DJI) increased by 0.5%. However, stocks recorded a weekly loss, with the S&P 500 down 3.1%, the Nasdaq falling 3.5%, and the Dow slipping 2.4%.
Despite the positive session, market volatility remains elevated as investors navigate uncertainty surrounding Trump’s tariff policies. Treasury yields also fluctuated, with the 10-year Treasury yield (US10Y) rising to 4.32% and the 2-year Treasury yield (US2Y) reaching 4%.
Trump’s Tariffs Add to Market Uncertainty
President Donald Trump’s tariff plans have further unsettled markets. Trump announced potential reciprocal tariffs on Canadian lumber and dairy products, adding to existing tariffs on China and Mexico.
“The week confirmed that tariffs remain a wildcard for market confidence,” said Mark Malek, CIO at Siebert Financial (NASDAQ:SIEB). “Markets have moved painfully in the red due to ongoing tariff discussions.”
Treasury Secretary Bessent Warns of Economic Slowdown
U.S. Treasury Secretary Scott Bessent acknowledged signs of economic weakness, suggesting that the economy is undergoing a natural adjustment.
“The market and economy have become addicted to government spending,” Bessent said. “There will be a detox period as we shift toward private-sector growth.”
Bessent downplayed tariff concerns, calling them a ‘one-time price adjustment’ rather than a long-term inflationary driver. He also noted that oil prices and mortgage rates have declined since Trump took office, though consumer sentiment has weakened.
Conclusion: Fed to Remain Cautious Amid Policy Uncertainty
With inflation hovering above target and Trump’s economic policies still unfolding, the Federal Reserve holds rates steady, adopting a cautious approach. While market expectations lean toward rate cuts, Powell’s comments indicate that the Fed will act only when clear economic signals emerge.
Investors will closely monitor upcoming data releases and Trump’s policy shifts to gauge future Federal Reserve moves. For now, uncertainty remains the dominant theme in financial markets.