Powell maintains the Fed's conservative stance: markets expect rate cuts

Jerome Powell, Chairman of the Federal Reserve System, demonstrated a cautious stance regarding upcoming monetary policy decisions while testifying before Congress during the semiannual report. His position remains more cautious than the recent signals from some Fed members, sparking discussions about disagreements within the central bank.

Disagreements within the Fed

This week, two central bank officials — Chris Waller and Michelle Bowman — expressed support for the possibility of a rate cut as early as July. However, Powell did not signal any readiness for such swift action. The Fed Chair reiterated the need for patience, noting that the economic situation allows the central bank to wait for additional data before making decisions.

“We are in a favorable position to wait for more information regarding the economic development before considering any changes to our course,” Powell stated in his testimony before lawmakers. This approach reflects the Fed’s belief that the current economic dynamics do not require hasty actions.

Market forecasts and the likelihood of rate cuts

Markets assign significantly different probabilities to rate cuts at various periods. According to CME FedWatch data, the chances of a cut in July remain modest at just 18.6%. By September, the probability of one or more rate reductions increases to over 80%, indicating market expectations of a substantial shift in the central bank’s policy.

This divergence between Powell’s current stance and some board members’ expectations creates tension, especially considering ongoing political pressure from the administration for a more dovish monetary policy.

Cryptocurrency industry: a change in tone

Jerome Powell was repeatedly asked by lawmakers about the Fed’s position regarding the cryptocurrency sector. The chairman noted “a significant change in attitude” toward digital assets, which he believes indicates an evolution in industry perception.

Although regulators have long been criticized for actively opposing credit institutions working with cryptocurrencies, Powell clarified that the Fed maintains an autonomous stance: “Banks themselves determine who their clients will be.” He also emphasized that financial institutions can conduct operations with digital assets provided they adhere to safety and stability standards.

Support for legislative initiatives

The chairman expressed a positive attitude toward legislative initiatives in Congress related to cryptocurrencies. “I see it as a positive development that bills are moving forward,” Powell said. He specifically highlighted the need to develop a legal framework for stablecoins, emphasizing the importance of creating proper regulation.

Context of inflation risks

Economists point to potential factors that could hinder the aggressive rate cuts expected by market participants. According to Adam Pozen from the research center and Peter Orszag from Lazard, inflation in the US could surpass 4% this year due to the combined effects of trade tariffs, labor market tensions, and large budget deficits.

Such inflation risks may compel the Fed to act more cautiously than investors and crypto market participants anticipate, who are eager for a quicker easing of borrowing conditions.

Conclusion

Powell’s stance demonstrates the Fed’s resolve to maintain control over inflationary processes despite pressure from various sides. The chairman’s dialogue with Congress shows a willingness for more open engagement with the crypto industry, but without rushing to adjust monetary policy.