Federal Reserve Chair Jerome Powell’s remarks last night once again captured global market attention. In his speech, Powell emphasized that U.S. monetary policy is not on a preset course but is instead entirely dependent on the latest economic data. He explained that the current conditions present two-sided risks: on one hand, inflation remains above target, while on the other, the labor market has begun to show signs of weakening.
Powell described the current stance of monetary policy as “modestly restrictive,” noting that although the Fed recently cut interest rates by a quarter-point, policy remains relatively tight. He stressed that this move was more of a “risk management cut”—an effort to mitigate risks from a weakening labor market—rather than the start of a broad easing cycle.
He also addressed equity valuations, which he acknowledged as “fairly highly valued” by many measures. However, Powell assured that, at present, there are no clear signs of heightened financial stability risks, indicating that the Fed still sees markets as relatively stable.
Political issues were not left untouched. Powell firmly rejected claims that Fed decisions are influenced by external pressures, dismissing such accusations as a “cheap shot.” This reaffirmation of central bank independence is considered crucial for maintaining credibility amid heightened political tensions ahead of the election.
Despite offering several important signals, Powell’s speech underscored lingering uncertainty. The latest projections suggest the possibility of up to three rate cuts this year, but Powell admitted that significant differences remain among FOMC members. This highlights the fragile consensus within the Fed, suggesting policy direction could shift quickly as conditions evolve.
For markets, Powell’s message carried a clear implication: there is no guarantee that further rate cuts will happen soon. Investors will continue to monitor inflation and labor market data as key drivers. Volatility could rise if incoming data diverges significantly from expectations.
Overall, Powell struck a cautious tone—balancing the Fed’s commitment to controlling inflation with the need to maintain labor market stability. He succeeded in reaffirming policy flexibility and the Fed’s independence, though he left markets facing uncertainty over the path ahead.
Key Points from Powell’s Latest Statement:
- Two-Sided Risks
Inflation risks remain tilted to the upside in the short term, while labor market risks lean to the downside, complicating monetary policy. - Not on a Preset Course
Future decisions will depend heavily on incoming economic data rather than a fixed path. - Interest Rates: “Modestly Restrictive”
Despite the latest cut, rates remain moderately restrictive, leaving room for further adjustment if necessary. - “Risk Management Cut”
The quarter-point cut was framed as risk mitigation against labor market weakness, not as the start of aggressive easing. - Minimal Financial Stability Concerns
While equities are seen as “fairly highly valued,” Powell does not believe financial stability risks are currently elevated. - Fed Independence Reaffirmed
Powell rejected political pressure claims, calling such criticisms a “cheap shot,” reaffirming the Fed’s autonomy. - Uncertainty & Internal Divergence
The latest dot-plot suggests up to three cuts in 2025, but Powell admitted divisions remain within the FOMC, underscoring ongoing policy uncertainty.