Federal Reserve Chair Jerome Powell adopted a cautious stance on interest rate cuts during his testimony before the House Financial Services Committee, signaling that the current strength of the U.S. economy justifies a wait-and-see approach. While several voices within the central bank have called for a swift policy easing, Powell chose to emphasize patience, refraining from aligning with growing market expectations for imminent action.

Despite anticipation that Powell might hint at a near-term rate reduction, his remarks underlined that monetary policymakers see no urgency to act. He emphasized the need for greater clarity regarding the real economic effects of recent policy measures—particularly tariffs—before committing to any decisions on interest rates.

Powell stated that the U.S. economy continues to show resilience, especially in the labor market, and noted that inflation, although gradually receding, remains above the Federal Reserve's target. His cautious tone came amid mounting political pressure, particularly from President Donald Trump, who has intensified his criticism of Powell, accusing him of being "consistently late" and "stubborn." Nevertheless, Powell stood firm on the need for a data-driven and independent policy path.

Within the Fed itself, differing views have emerged. Members like Christopher Waller and Michelle Bowman have expressed openness to a rate cut as early as July. However, Powell remained more reserved, arguing that recent economic data, while supportive of easing, largely reflect past conditions and do not offer sufficient insight into future trends.

Markets responded to Powell’s comments with measured caution. Bond yields declined, the U.S. dollar weakened, and expectations of a double rate cut before the end of the year gained momentum. Still, Powell avoided committing to any timeline, stating that “many paths remain possible,” including keeping rates elevated if inflationary pressures persist.

Addressing the impact of tariffs, Powell acknowledged that their effects on prices could be either temporary or more sustained. He stressed the absence of reliable historical models to guide the Fed’s decisions in this context, highlighting the importance of closely monitoring how these costs are passed on to consumers.

In closing, Powell reaffirmed the strength of the U.S. economy and the solid state of the labor market. However, he also cautioned that the goal of restoring price stability has yet to be fully achieved. Any significant inflationary shock, he noted, could force the Fed to adopt a more hawkish stance if necessary.