Jerome Powell discusses the Semi-Annual Monetary Policy Report with the House Financial Services Committee

    by VT Markets
    /
    Jun 25, 2025
    Federal Reserve Chairman Jerome Powell spoke to the House Financial Services Committee about how tariffs might affect inflation and the economy. He clarified that the US is not in a recession and mentioned that if inflation or the job market weakens, the Fed might cut interest rates earlier than expected. The Federal Reserve is ready to change its policies based on economic conditions. While most Fed members expect rate cuts this year, the forecasts are still uncertain. The Fed’s goal is to keep prices stable while also maintaining a strong job market. Powell emphasized that economic forecasts are constantly changing, and the effects of geopolitical issues in the Middle East are still unclear.

    Market Reaction to Powell’s Testimony

    The market reacted noticeably to Powell’s testimony, with the US Dollar Index falling by 0.3%. The dollar weakened against major currencies, especially the New Zealand Dollar. Investors are closely watching economic factors like tariff impacts and job market conditions, which are influencing market sentiment and currency values. After Powell spoke, we noticed an immediate shift in currency pairs, particularly a slight but significant drop in the dollar. His hint at possible earlier rate cuts—if the data shows it’s necessary—likely drove this response. Although there’s no sign of a recession now, the suggestion that rates may drop sooner is important and suggests that policymakers are poised to act more quickly than before. Currently, the Federal Reserve hasn’t set a specific timeline for rate adjustments. However, Powell’s comment about inflation softening and a possible downturn in labor metrics offers a clearer view of what could trigger a policy change. This makes upcoming employment reports, core PCE numbers, and CPI data even more important. If these indicators show significant deviations from trends, especially a downturn, it could shift expectations towards a quicker policy change.

    Impact of Tariffs and Geopolitical Tensions

    Powell also discussed tariffs and geopolitical tensions, especially regarding the Middle East. While the outcomes are currently unclear, they could greatly impact future pricing pressures. These factors are no longer background issues but critical elements that can significantly alter expectations. It’s essential to analyze how changes in risk pricing reflect market sensitivity to these factors. From a trading perspective, we’ve already seen movements in G10 currencies, especially the Kiwi, which rose as the dollar declined. This isn’t just speculation; it shows how comments about flexible policy can change market positioning. Traders should now adapt based on what current trends suggest rather than relying on past data. Keep an eye on the short end of the rates market. It’s not just about whether cuts will happen, but how fast and decisively they will come. Derivative traders should monitor implied volatility in short-dated options, especially in foreign exchange and interest rates, since any changes in Fed officials’ tones or data could lead to short-term price movements. It’s clear that pricing pressures aren’t only affected by domestic factors. External events, particularly geopolitical developments, can either strengthen or weaken domestic labor and consumption data. We are closely observing changes in Treasury yields, especially the 2-year yield, as early signs of market repositioning are likely to show up there first. In conclusion, policies are reactive rather than preemptive. Any shifts in incoming data from previous patterns could quickly affect the policy outlook, and the market is ready to respond. The message is clear: stay alert to upcoming data, keep an eye on rate futures markets, and adjust positions regularly based on changing inflation forecasts and global trade expectations. Create your live VT Markets account and start trading now.

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