Federal Reserve Chair Jerome Powell just delivered what may become the defining statement of the summer: the Fed is not in a hurry. Speaking at the European Central Bank’s annual policy forum in Sintra, Portugal, Powell held firm to the Fed’s “data-first” approach – signaling that any interest rate cuts are still on the table, but far from guaranteed.
The speech didn’t shock markets, but it did send a message: the central bank will not front-run inflation with rate relief until it’s confident that price stability is here to stay. That cautious tone is increasingly shaping how investors think about the back half of 2025.
No Meeting Off the Table, But No Rush Either
During his conversation with ECB President Christine Lagarde, Powell emphasized that “no decision has been made” on whether the Fed will cut rates in July, September, or later. What mattered more than anything was incoming data. “No meeting is off the table,” he said, but “we just need to see more good inflation data.”
His words were careful but clear. The Fed sees the risk of cutting too soon as outweighing the risk of waiting too long. The U.S. economy, he said, remains resilient, with a strong labor market and steady consumer demand. But inflation remains “above our target,” and Powell reiterated that the Fed wants “greater confidence” before pivoting to an easing stance.
In short, this wasn’t a green light – it was a flashing yellow.
The Tariff Factor
Interestingly, Powell also brought up trade policy – specifically former President Donald Trump’s newly imposed tariffs – as a complicating factor. He noted that these tariffs are creating new inflationary pressures, and the Fed will need to watch closely how those dynamics evolve.
This marked one of the few times Powell has directly linked trade policy to the Fed’s interest rate trajectory. The implication is clear: external economic shocks could delay cuts even if core data trends look promising.
Market Reactions and Rate Cut Odds
Powell’s remarks didn’t deliver much surprise, but they did reset expectations. Bond markets reacted immediately. Yields on short-term Treasuries slipped to their lowest levels in months, while futures traders scaled back bets on a July rate cut.
According to CME FedWatch data, the probability of a July rate cut dropped to around 25% following the speech, down from nearly 40% a week earlier. Meanwhile, expectations for a September cut jumped to more than 70% – indicating that investors still believe relief is coming, just not right away.
These moves were mirrored in the broader market. The S&P 500 ended the day relatively flat, while interest-rate sensitive sectors like utilities and real estate saw mild gains. Traders are now bracing for a “wait-and-see” summer, with each data release potentially tilting the odds.
Why the Data Still Rules Everything
If Powell’s message had a headline, it would be this: data still drives everything. And right now, that data is sending mixed signals.
The labor market remains solid, but not as hot as it was a year ago. Job openings are gradually declining, and wage growth has moderated. Upcoming employment reports, including the June non-farm payrolls data, will be crucial. A weaker-than-expected print – something around 100,000 new jobs – could nudge the Fed toward action. But another strong report would give Powell every reason to keep waiting.
Manufacturing data is also back in the spotlight. The latest ISM manufacturing index fell for the second straight month, raising concerns that the industrial economy is starting to feel the pressure from high borrowing costs. That matters because slowing business activity could eventually bleed into hiring and inflation.
And then there’s inflation itself. Core PCE and CPI figures have both been sticky. While price pressures are easing from pandemic-era highs, they’re not falling fast enough to trigger immediate relief. Powell made it clear: “We’ve had good data, but we need more.”
What This Means for Investors
So, how should investors navigate a “data-first” Fed that won’t commit to a timeline?
First, it’s worth understanding that Powell’s posture is not bearish. It’s cautious – and there’s a difference. The Fed isn’t trying to slow the economy further; it’s trying not to misread temporary improvements as permanent ones. That makes this a period of recalibration rather than reaction.
Second, fixed-income markets are beginning to reflect a potential soft landing. Investors with exposure to short- and medium-duration bonds could see continued gains if rate cuts are merely delayed and not scrapped altogether. Yields on the 2-year Treasury have already declined, suggesting that the market sees lower rates on the horizon – even if not in July.
Third, equities remain caught between optimism and patience. Sectors that thrive on rate cuts – like real estate, consumer discretionary, and small-cap growth – may tread water for now. But should inflation data continue to improve, these areas could rally sharply into Q3.
For more conservative investors, now might be the time to trim aggressive rate-cut trades and rotate into defensive quality. Corporate earnings remain stable, and companies with pricing power are likely to outperform in a slower-growth, high-rates environment.
A Summer of Signals
With Powell’s message now out in the open, all eyes turn to the next batch of economic data. Friday’s jobs report could be a game-changer. So could July’s inflation prints. Each release will either reinforce or undercut the Fed’s patient stance.
The message from Sintra is simple but powerful: the Fed is not reactive – it’s responsive. And that means investors need to be the same. This summer won’t be about chasing hype. It’ll be about watching every number, reading every signal, and staying flexible.
As Powell said, “We’re prepared to wait – and to move – depending on what the data tells us.” That’s not a promise of cuts. It’s a promise of caution. And right now, that’s what markets are pricing in.
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