Powell Dispels Hopes for "Dovish" Policy: Key Takeaways from the Federal Reserve Chair's Speech

Powell’s speech after the Fed’s decision to cut interest rates by 0.25 percentage points disappointed supporters of aggressive cuts. The head of the U.S. central bank clearly indicated that this decision is solely a risk management measure, not the start of a wave of easing monetary policy. Following the news, Bitcoin dropped below $110,000, although the market later recovered to around $111,000.

Why December is not a guarantee

The most notable message from Powell’s speech: further rate cuts in December are not predetermined. The meeting revealed significant disagreements among Fed members regarding the future course of monetary policy. Essentially, today’s decision was made by a majority vote, but sharp differences in views concerned future actions. This means investors should not automatically expect another cut at the end of the year.

Inflation — the main obstacle

Powell emphasized that inflation remains somewhat elevated, although the latest consumer price index was slightly below expectations. He estimates that the overall PCE and core PCE increased by 2.8 percent. Despite positive signals of disinflation in the services sector, most long-term inflation expectations are aligned with the target level, but there remains a risk of persistent higher prices.

Powell paid particular attention to the impact of tariffs. Raising tariffs leads to higher prices for certain goods, but the baseline scenario assumes a short-term effect. Nonetheless, the Fed’s duty is to ensure that the impact of tariffs does not become a permanent problem for price stability.

Labor market: slowing without panic

The Fed chief noted a clear slowdown in labor demand. Layoffs and hiring remain at low levels, indicating a gradual deceleration of economic activity. However, Powell emphasized that the labor market is not experiencing a rapid decline — the dynamics of layoffs and unemployment benefit claims suggest a soft slowdown rather than a crisis.

Government shutdowns will temporarily negatively impact economic activity, but prospects will improve once it ends. Data from individual states indicate relative stability, which offers cautious optimism.

Balance sheet policy: a transitional period

Powell’s speech also revealed new details about the Fed’s balance sheet strategy. A new phase of reduction will begin in December, which, according to the chairman, will be stable for some time. At some point, the Fed will start replenishing reserves again, but the final target level has not yet been determined. Powell estimates that current reserves slightly exceed adequate levels.

The key to future decisions

Powell outlined the condition under which policy could change: if data shows stabilization or strengthening of the labor market, it will significantly influence decision-making. Therefore, the main focus for investors is not so much on macroeconomic indicators but on employment trends and wage pressures.

The key message of Powell’s speech is that the Fed faces a double dilemma: it is impossible to address employment issues and inflation risks simultaneously with one tool. The risk balance has shifted, and there is no longer a “risk-free path” for monetary policy. This explains why today’s rate cut is seen as an exceptional risk management measure rather than a signal of readiness to systematically ease financial conditions in the coming months.