Forex Analysis & Reviews: 07.04.2025 - Jerome Powell Is Not Ready...

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07.04.2025 11:11 AM

Jerome Powell Is Not Ready to Intervene

Investors were deeply disappointed when Federal Reserve Chair Jerome Powell made it clear during his Friday speech at the end of last week that he does not intend to intervene in the current market developments.

According to Powell, the U.S. central bank will not rush to respond to the Trump administration's broad tariffs or to the market turbulence triggered by fears of a global economic downturn. While the tariffs are expected to have a significant impact on the U.S. economy—slowing growth and increasing inflation—Fed officials have decided to wait for greater clarity on Trump's new policies before lowering interest rates.

The market responded immediately. Powell also emphasized that since inflation remains high, the Fed must ensure that the temporary price increases driven by tariffs do not become entrenched.

It is now evident that the Fed is not in a position to offer the kind of economic "insurance" it provided during the 2018–2019 trade war, as inflation remains above target. The Fed's apparent hesitation could result in the U.S. economy falling into a recession in the second half of the year. At that point, the central bank is likely to take action, as there will be more clarity about the trajectory of inflation and the global economy's reaction to Trump's protectionist measures.

"Although the level of uncertainty remains high, it is becoming clear that the scale of the tariffs will be significantly larger than expected," Powell said at the annual conference of the Society for Advancing Business Editing and Writing. "Our responsibility is to keep long-term inflation expectations anchored and to ensure that a one-time price level increase does not evolve into a persistent inflation problem," he added.

In his view, the Fed is in a favorable position to wait for more clarity before considering any adjustments to its policy stance. Powell noted that the central bank's tools can either slow or stimulate the economy, and a choice between the two will be necessary if both inflation accelerates and growth weakens.

Powell's remarks also indirectly point to the Fed's readiness to make broader use of its monetary policy tools, which could include not only interest rate adjustments but also changes to the size of its balance sheet. However, economists remain divided on the long-term implications of such a policy. Some believe decisive action is needed to stabilize prices and prevent an inflationary spiral, while others worry that keeping rates high for too long could slow economic growth and trigger a recession.

It is worth noting that the Fed's next meeting is scheduled for May 6–7. Traders in the futures markets, who had assigned about a 50% chance of rate cuts, reduced those odds to around 30% following Powell's comments.

As for the current technical outlook for EUR/USD: Buyers now need to focus on breaking above the 1.1020 level. Only then can they target a test of 1.1090. From there, a move to 1.1145 is possible, although reaching that without support from major players would be difficult. The final target would be the high at 1.1215. If the instrument declines, major buying activity is expected around the 1.0950 zone. If buyers don't step in there, it would be wise to wait for a retest of the 1.0890 low or open long positions from the 1.0845 level.

As for the technical picture for GBP/USD: Pound buyers need to push through the nearest resistance at 1.2950. Only then can they aim for 1.2990, although breaking above that level will be challenging. The ultimate target would be the 1.3040 level. If the pair falls, the bears will try to take control around 1.2870. If successful, a breakdown of that range could deal a serious blow to bullish positions and push GBP/USD down toward the 1.2830 low, with the potential to reach 1.2760.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.