Powell submits semiannual testimony to Congress: economy steady, Interest Rate watchful, encryptionCompliance turning point

"We are in a complex economic environment, and although facing uncertainty, the U.S. economy still shows resilience. Meanwhile, financial innovation must proceed on the basis of safety and stability." - Jerome Powell, Chairman of the Federal Reserve

On June 24, Federal Reserve Chairman Jerome Powell attended the Congressional Financial Services Committee hearing on the 'Semi-Annual Monetary Policy Report' for testimony. This is not only a phased summary of the economic situation by the Federal Reserve, but also a directional signal that the market is paying close attention to against the backdrop of repeated global inflation, escalating geopolitical risks, and unclear regulatory framework for cryptocurrencies.

Macro Economic Outlook: Growth is resilient, but uncertainty remains

Powell's key description of the current economic situation is "stable," and he emphasizes:

Strong labor market: In the first five months of this year, non-farm employment has increased by an average of 224,000 people per month; the unemployment rate has remained at a low level of 4.2%, close to full employment level.

Economic growth continues: Although GDP declined slightly in the first quarter, this was mainly due to the impact of "trade advance import behavior", which is not indicative of a significant contraction. The Atlanta Fed's GDPNow model predicts that growth in the second quarter will be close to 4%, further confirming that the economy has not fallen into recession.

Consumer spending has slowed, but investment in equipment and intangible assets by businesses is picking up, with private domestic final demand still growing at a pace of 2.5%.

He pointed out that the current uncertainty mainly stems from trade policy disruptions and geopolitical variables, and the decline in confidence index reflects the concerns of enterprises about future tariffs and global supply chain changes.

Inflation and tariffs: pressure remains, the Fed will 'learn as they go'

Regarding inflation, Powell said:

PCE rose by 2.3% year-on-year, core PCE rose by 2.6%, significantly below the mid-2022 peak, but has not yet returned to the long-term 2% target.

Market inflation expectations have slightly increased, mainly due to the transmission effects of additional tariffs.

Powell made it clear that "tariffs this year are much higher than ever before," and if their impact persists, it could lead to a resurgence in inflation.

For policy making, he emphasized the data-driven flexibility:

"We will evaluate the specific impact of tariffs based on the upcoming CPI and PCE data for June, July, and August. If the current impact is limited, we may consider starting the easing path earlier; otherwise, we will continue to observe."

This means that inflation expectations have become a key variable affecting the pace of the Federal Reserve's policy, greatly reducing the probability of a rate cut in July, and making September and beyond an important window for policy adjustments.

Monetary Policy Path: Short-term Observation, Hope for Rate Cut within the Year

The Federal Reserve has kept the federal funds rate unchanged in the range of 4.25%–4.5% since the beginning of the year.

Most FOMC members believe that "it is appropriate to cut interest rates later this year" on the condition that inflation slows or the labor market weakens.

Powell cited the background of the rate cut in September 2024 (when the unemployment rate was close to 5%) to illustrate that the current labor market is still strong, so there is no urgent need for easing.

He admitted, "If we wait for inflation to return to 2% before taking action, it will be too late." This indicates that the tension between forward-looking adjustments and lagging indicator judgments is creating a dilemma for current policy making.

Market consensus has also responded rapidly—CME data shows that the probability of a rate cut in July has dropped to about 25%, while the expectation of a rate cut in September remains stable at 65%–70%.

4. Cryptocurrency Financial Regulation: Banking Services for Crypto Officially 'Approved'

In this testimony, the most noteworthy highlight of the Web3 industry is Powell's first clear statement in a congressional public setting:

“Banks can provide services and related businesses to the crypto industry, as long as they can ensure the security and stability of the financial system.”

This statement is groundbreaking. It breaks the regulatory vacuum that traditional banks have been hesitant to touch regarding Crypto account services, opening the door for Web3 infrastructure to align with compliance:

Stablecoin clearing business (such as USDC, PYUSD) may gradually gain endorsement from mainstream banks;

Cryptocurrency custody platforms (such as Anchorage, Fireblocks) will become the preferred choice for bank compliance cooperation;

RWA (real-world assets) that are connected to off-chain assets and tokenized financial instruments may accelerate;

US Crypto Banks (such as Custodia) may find it easier to obtain state and federal licensing support.

More importantly, Powell emphasized that the Fed has no intention of buying Bitcoin or Trumpcoin, demonstrating its encouragement of innovation but excluding official intervention in asset prices policy discipline.

Real Estate, AI, and the Independence of the Federal Reserve: Maintain Confidence, Stabilize Expectations

Powell also addressed a number of hot topics in his testimony:

The real estate market is suppressed by high mortgage rates, but the inflation data for rents is falling, and the Fed will still prioritize supporting "price stability restoration".

The transformation of artificial intelligence technology may impact the labor force structure, but the Fed's mandate remains the largest employment and price stability, with other regulatory responsibilities relying on legislative bodies and market mechanisms.

The US dollar's status as a global reserve currency remains stable, with the rule of law and institutional advantages as its fundamental support, and the Federal Reserve will continue to maintain this core competitiveness through "stable currency value".

Adhering to the independence of the central bank, not affected by political cycles, and not responding to the "rate cut pressure" in election years.

Summary: The Web3 industry welcomes the policy 'dawn window period'

The multiple signals released in this congressional testimony are a clear turning point for the Web3 industry chain:

U.S. macro policies remain conservative and cautious, but there is still room for interest rate cuts around September if inflation is not as intense as expected, which is positive for risk assets;

The clarity of crypto compliance is gradually improving: banking service policies are clear, and custody/payment/stablecoin infrastructure may enter a growth path;

The trend of dollarization is strengthening, which is a long-term positive for projects such as USDC, tokenized national debt, and RWA.

After going through a phase from regulatory crackdown to gray area exploration in the past few years, Web3 has finally ushered in a "golden middle ground" characterized by "compliance + mainstream access." This may be our closest turning point to compliant DeFi, on-chain USD, and tokenization of real-world assets.