Eyes on the Fed: what has Powell decided?

Eyes on the Fed: What Has Powell Decided?

July 30, 2025 — The Federal Reserve today announced its decision to leave interest rates unchanged, maintaining the federal funds rate target range between 4.25% and 4.50%, as established in the previous four meetings.

In our previous analysis, we outlined the Fed’s monetary policy outlook: the Fed had shown caution, forecasting two possible rate cuts by the end of 2025 if there were signs of economic slowdown, but emphasized that persistent or rising inflation could prolong its restrictive stance.

Why Is Powell Holding Rates Steady?

1. Inflation Still Above Target
U.S. inflation, as measured by the CPI, rose to 2.7% year-over-year in June, exceeding the 2% target. The Fed’s preferred metric, the core PCE index, is also estimated at around 2.7% annually, while the headline PCE could be nearing 2.5%. Powell reiterated that recently imposed tariffs are fueling inflationary pressures, highlighting the still “meaningful” pace of price growth.

2. Trade Uncertainties and Tariffs
Recent tariffs linked to geopolitical and trade tensions are impacting import costs. Powell stressed the need to observe how these effects translate into real inflation data before moving forward with any expansionary measures.

3. Strong Labor Market, Weak Growth
The U.S. labor market remains robust, with unemployment around 4.2% and ongoing wage growth outpacing core inflation. However, economic growth is weak: the Fed has revised its GDP forecast for 2025 to about 1.4%, down from 1.7% earlier in the year.

Growth is also struggling in Europe: according to the OECD, eurozone inflation in May stood at 1.9% (core at 2.3%), and ongoing trade negotiations with the U.S. are fueling uncertainty. The European Central Bank is being forced to keep rates around 2%.

The Overall Picture

Powell is opting for a "wait-and-see" approach, holding back not due to a lack of options, but because:

Although the Fed kept rates unchanged, its internal projections still include the possibility of two 25-basis-point cuts by year-end, if conditions allow. However, as previously noted, several FOMC members are now more cautious: more participants appear inclined to keep rates stable for longer, given the risk of stubborn inflation and stagnant growth.

In the article “Fed Monetary Policy Forecasts,” we described a scenario in which, should the labor market show signs of weakening and inflation fall near or below target, the Fed could implement cuts. That outlook remains valid but data-dependent. For now, inflation is above target, the labor market is holding up, and trade data are ambiguous — so rate cuts are likely postponed until late in the year.

Final Summary

• Decision of July 30, 2025: Rates held steady at 4.25–4.50%.
• U.S. inflation remains high, both headline and core (~2.7%).
• Labor market resilient, unemployment stable.
• Weak economic growth: approx. 1.4% in 2025.
• Trade tensions and tariffs continue to pressure inflation upward.
• Rate cuts still on the table, but data-dependent — potentially from September or December 2025.

Powell is thus maintaining a prudent and authoritative stance, choosing not to “sweep the dust under the rug”: the risks tied to persistent inflation and market instability currently justify the decision to refrain from easing monetary policy.