Monetary policy decision and forecasts
The main outcomes of the press conference revealed by Powell were centered around three key points:
. Interest rate decision:
· The benchmark interest rate was reduced by 25 basis points to a range of 3.5% - 3.75%, marking the third consecutive cut since September 2025.
· Economic forecasts (the dot plot) indicated that Federal Reserve members expect only one additional rate cut in 2026, bringing the rate down to 3.4% by the end of that year, and two more cuts in 2027, reaching 3.1%.
. Economic updates and assessment:
· Inflation: The Personal Consumption Expenditures (PCE) inflation rate is expected to decrease to 2.9% by the end of 2025, and then to 2.4% by the end of 2026.
· Growth: Economic growth (GDP) forecasts for 2026 were raised to 2.3%, a stronger percentage than previous forecasts.
· Labor market: Powell mentioned that the labor market has weakened recently, with a slowdown in job growth, which was one of the justifications for the cut.
. A split within the Fed:
The decision recorded the highest level of internal opposition in six years, with three members opposing it for different reasons:
· Two voted to keep interest rates unchanged.
· One (Governor Stephen Moore) voted for a larger cut of 50 basis points.
Key signals and statements from Powell
Powell's tone during the press conference included important signals for the future policy path, which can be summarized as follows:
• Current phase:
· "In the case of readiness On hold, Powell described the current monetary policy as having reached an almost neutral zone, meaning that the current rate does not strongly stimulate or strongly restrain the economy.
· Raising the ceiling of expectations: He indicated that the threshold for approving additional cuts in the future has risen, and that any upcoming moves will be based solely on incoming economic data.
• Challenges and pressures:
· The difficult balance: Powell acknowledged that the Fed is balancing the risks of high inflation, which remains above the target (2%), against the risks of a slowdown in the labor market.
· Independence: In light of political pressures, Powell reaffirmed the Fed's strong commitment to maintaining its independence in decision-making based solely on economic considerations.
Analysis of the conference's impact on markets
The financial markets reacted variably to Powell's decision and comments:
· Stock market: The market behaved relatively calmly, with the Dow Jones rising by 0.8%, and the S&P 500 increasing by 0.4% after the announcement.
· Market liquidity: Powell announced that the Fed will resume buying short-term Treasury bonds, starting with $40 billion in the first month, to ensure adequate levels of liquidity in the markets.
A look at the future
Clearly, the Fed is entering a new phase of caution after a series of recent cuts. The future holds several factors that will determine the course of monetary policy:
· Economic outlook: The revised projections for growth and inflation in 2026 will serve as a roadmap for the Fed to guide its future decisions.
· Fed Independence: With Powell's term ending in May 2026, and political pressures to cut rates more quickly, maintaining monetary policy independence may become a major challenge in 2026.
