Why Powell Held Rates Steady, And What Trump's Iran Comments Could Mean For Markets

Federal Reserve Chair Jerome Powell defended the decision to keep interest rates unchanged on Wednesday, saying inflation has eased but not enough to warrant cuts, especially with trade and geopolitical risks clouding the outlook.

"Incoming inflation data has been encouraging," Powell said during his press conference, pointing to three consecutive months of positive readings, "but inflation is still running somewhat above our 2% longer-run objective."

Asked why the Fed cut rates in December but didn't move now despite similar inflation, Powell pointed to the evolving inflation forecast: "We saw a 2.5% forecast in December, 2.8% in March and 3.1% now… That's due to the effects of the tariffs."

Powell made clear that tariffs—particularly those tied to recent changes in trade policy—remain a significant source of uncertainty. He noted that "we're beginning to see some effects" of tariffs on prices, especially in goods like personal computers and audiovisual equipment, but emphasized that the full impact may take months to filter through.

Powell added that business surveys indicate "many companies do expect to put all or some of the effect of tariffs through to the next person in the chain. And ultimately, to the consumer."

Powell Downplays Tensions In The Middle East

Addressing tensions in the Middle East, Powell said energy price spikes are possible but typically fade without lasting inflationary impact.

"We haven't seen anything like the 1970s," he said, noting the U.S. economy is now far less reliant on foreign oil.

The Fed now sees core personal consumption expenditures (PCE) inflation at 3.1% in 2025, up from 2.8% in March, and 2.5% in December.

The Fed dot plot sees potential for two rate cuts in 2025, unchanged from March, and two more in 2026, a slight downward revision from the prior two cuts.

While several committee members penciled in no rate cuts this year, Powell clarified that no path is locked in. "It's the least unlikely path in a situation like this where uncertainty is very high," he said. "Certainly, a hike is not the base case at all."

Markets Recover On Powell-Driven Slide As Trump Comments On Iran

Markets initially interpreted Powell's comments as hawkish, sending the U.S. Dollar Index up 0.4% within 30 minutes of his press conference. Treasury yields erased session declines, with the 10-year yield recovering to 4.39%.

The Nasdaq 100 – as tracked by the Invesco QQQ Trust QQQ – dropped 180 points from its session peak during Powell's remarks but recovered sharply after President Donald Trump made surprise comments on the Middle East.

The S&P 500 and the Dow Jones posted similar intraday swings.

Speaking from the White House, Trump fueled geopolitical tension by suggesting regime change in Iran was possible and hinting at imminent military decisions.

"Anything could happen. Iran wants to come to the White House. I may do that," Trump said, adding that a meeting on the Iran-Israel conflict was scheduled within the hour.

"We’re long beyond ceasefire," he said in response to comments from French President Emmanuel Macron, adding, "We’re looking for total victory and no nuclear weapon."

Chart: Tech Stocks Reactions To Fed Meeting, Powell Remarks

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Photo courtesy of the Federal Reserve.