Fed's Powell Adopts 'Wait-and-See' Approach to Policy Risks

Federal Reserve Chair Jerome Powell has adopted a cautious stance on interest rate adjustments, as the central bank enters a "wait and see" mode to assess the potential impacts of President Trump's proposed policies on the economy and inflation. In his testimony before the Senate Banking Committee on February 11, 2025, Powell emphasized the importance of monitoring key economic indicators and policy developments to make informed decisions about monetary policy.

Powell's cautious approach comes as the Fed grapples with the challenges of balancing the risks of inflation and economic growth. Inflation has been "elevated" and has shown limited progress in recent months, hovering closer to 3% than the Fed's stated goal of 2% (Powell, 2025). Meanwhile, the labor market remains solid, with the unemployment rate at a low 4% in January 2025, and economic growth has been robust, with GDP expanding at a solid pace of 2.5% in 2024 (Powell, 2025).



To assess the potential impacts of President Trump's proposed policies on the economy and inflation, the Fed will monitor several economic data points and policy developments. These include inflation rates, labor market conditions, trade policies and tariffs, consumer and business confidence, and GDP growth. By closely watching these indicators, the Fed can better evaluate the effectiveness of its previous rate cuts and the potential impact of Trump's policies on the economy.



The Fed's cautious stance on interest rate adjustments can influence investment decisions in various asset classes, such as bonds, stocks, and real estate. The pause in rate cuts may lead to a flattening or even a slight decline in bond yields, making bonds more appealing to investors seeking income and stability. However, the Fed's statement that it is entering a "wait and see" mode may also introduce uncertainty, as investors may be hesitant to commit to long-term bond investments without clarity on future rate movements.

In the stock market, lower interest rates make borrowing cheaper for companies, which can boost their earnings and make stocks more attractive. However, the Fed's decision to pause rate cuts may also introduce uncertainty, as investors may be concerned about the potential impact of future rate hikes on corporate earnings. Additionally, the Fed's focus on inflation may lead investors to favor sectors that are less sensitive to interest rate changes, such as consumer staples and utilities, over sectors that are more sensitive, such as financials and real estate.

In the real estate market, the Fed's decision to pause rate cuts may lead to a flattening or even a slight decline in mortgage rates, making real estate more affordable and attractive to buyers. However, the Fed's focus on inflation may also introduce uncertainty, as investors may be concerned about the potential impact of future rate hikes on real estate prices. Additionally, the Fed's cautious stance on interest rates may lead investors to favor other asset classes, such as bonds and stocks, over real estate.

In conclusion, the Fed's cautious stance on interest rate adjustments, as evidenced by its decision to hold the federal funds rate steady at 4.25% to 4.5% in February 2025, can influence investment decisions in various asset classes. By adopting a "wait and see" approach, the Fed is acknowledging the uncertainty surrounding President Trump's proposed policies and the need to monitor key economic indicators and policy developments to make informed decisions about monetary policy. As investors await clarity on the Fed's future policy decisions, they may be hesitant to commit to long-term investments in bonds, stocks, and real estate. However, the specific impact on each asset class will depend on a variety of factors, including the Fed's future policy decisions, the broader economic outlook, and investors' risk tolerance.