Fed Chair Powell says economic growth moderating despite strong Q2 GDP

US Federal Chair Jerome Powell

Federal Reserve Chair Jerome Powell flagged slowing economic growth, even as U.S. GDP grew three percent for the second quarter of 2025 in his speech, following the Federal Open Market Committee's July meeting.

Chair Powell said, "Recent indicators suggests that growth of economic activity has moderated." Instead of looking at the quarterly GDP growth of three percent, Powell noted that
GDP rose at a 1.2 percent pace in the first half of this year, down from 2.5 percent last year.

"Although the increase in the second quarter was stronger at 3 percent, focussing on the first half of the year helps smooth through the volatility in the quarterly figures related to the unusual swings in net exports. The moderation in growth largely reflects a slowdown in consumer spending," he said.

On the other hand, U.S. President Donald Trump posted on Truth Social, his social media platform, the reading was three percent was "WAY BETTER THAN EXPECTED!" Using his nickname for Fed Chair Powell, Trump said, "'Too Late' MUST NOW LOWER THE RATE. No Inflation! Let people buy, and refinance, their homes!"

According to the Fed Chair, the current policy rate is 'modestly restrictive.' "Inflation is running a bit above 2 percent, as I mentioned, even excluding tariff effects, the labour market's solid historically low unemployment, financial conditions are accommodative in the economy is not the economy is not performing as though restrictive policy we're holding it back inappropriately," he added.

Therefore, it seems that the economy is not performing as a restrictive policy, as holding it back inappropriately and modestly restrictive policy seems appropriate. All that said, there's also downside risk to the labour market, Powell stated.

The U.S. Federal Reserve's Federal Open Market Committee has kept interest rates unchanged at 4.25 percent to 4.5 percent in the July 29-30 meeting for the fifth straight session. The central bank maintained the same level since December 2024 amid ongoing geopolitical tensions and tariff-related volatility.

On the tariff front, Jerome Powell said that higher tariffs have begun to show through more clearly to prices of some goods, but their overall effects on economic activity and inflation remain to be seen.

In his speech, he added, "A reasonable base case is that the effects on inflation could be short-lived, reflecting a one time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent, and that is a risk to be assessed and managed."

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