Powell Holds Rates at 4.25% Amid Labor Market Caution

Global financial markets reacted positively to Federal Reserve Chair Jerome Powell’s recent press conference, where he maintained the benchmark interest rate at 4.25% and emphasized the need for more data before considering any cuts. Asian and European markets opened broadly higher, with the S&P 500 futures rising nearly 1% premarket, signaling optimism among investors. However, the repeated mention of "downside risks" in the labor market—used six times by Powell—cast a shadow over the upbeat response [1].

While Powell acknowledged the labor market as "solid," he highlighted that inflation remains above the Fed’s target and warned of ongoing risks to employment. This cautionary tone aligns with broader economic trends showing near-full employment but weak hiring momentum, partly driven by one-off government and education sector gains. Analysts have noted a growing concern that the labor market is becoming more fragile, with Goldman Sachs’ Jan Hatzius stating that Powell’s remarks "suggest that lowering rates soon could be reasonable but is not yet essential" [1].

Daiwa Capital Markets’ Lawrence Werther and Brendan Stuart observed that Powell’s repeated emphasis on labor market risks signals a shift in the Fed’s stance. Despite the low unemployment rate, slowing hiring and labor force participation suggest a balancing act in the employment market [1].

The coming jobs report—nonfarm payrolls—will be a key test of this evolving narrative. Oxford Economics’ Nancy Vanden Houten predicts weaker job growth and a slight rise in the unemployment rate in July, which could accelerate the case for an earlier rate cut. “This will probably increase Federal Reserve concerns about the risks to the labor market,” she noted [1].

Meanwhile, UBS’s Paul Donovan pointed out that while U.S. companies are investing in domestic manufacturing, the employment impact is muted. “The new factories are full of robots, not humans,” he said, highlighting the role of automation in capital-labor substitution [1].

Market activity before the New York open reflected the anticipation of these developments. The S&P 500 futures rose 1%, the STOXX Europe 600 edged up 0.14%, and the UK’s FTSE 100 gained 0.52%. In Asia, Japan’s Nikkei 225 jumped 1.02%, while China’s CSI 300 Index dropped 1.82%. South Korea’s KOSPI fell 0.28%, and India’s Nifty 50 rose slightly by 0.08% [1].

Bitcoin continued to trade above $118,000, showing resilience in the crypto market amid macroeconomic uncertainty.

Source: [1] The Fed’s Powell said the phrase ‘downside risks’ six times in his press conference yesterday—is that bad news for tomorrow’s jobs number? (https://fortune.com/2025/07/31/the-feds-powell-said-the-phrase-downside-risks-six-times-in-his-press-conference-yesterday-is-that-bad-news-for-tomorrows-jobs-number/)