Jerome Powell continues to steer his ship well. Despite headwinds—both political and economic—the Fed Chairman has managed to initiate a dovish shift while remaining as "neutral" as possible and holding as many cards as possible. After his speech at the Jackson Hole Symposium this summer, one might have expected a much more accommodating speech. This ultimately wasn't the case, and it's clear that Jerome Powell demonstrated a certain skill. Not as boring as Christine Lagarde, but the idea was there. The various financial assets ultimately reacted relatively little to the Fed meeting, with market expectations now more in line with the FOMC's forecasts. Moreover, the trajectory for the next six months now appears relatively clear, with the Fed Funds rate returning towards 3%.
In detail, and as widely anticipated, the Fed resumed its easing cycle by lowering its key interest rates by 25 basis points, after a nine-month hiatus. Although the American institution still faces two divergent objectives (inflation and employment), the focus is now on a significantly cooling labor market. While the unemployment rate remains historically low, partly thanks to the contraction in supply linked to Donald Trump's immigration policy, business demand is slowing, and unemployment is rising rapidly among certain more vulnerable subcategories, particularly among young people. Regarding inflation, despite the expected rise in goods prices linked to tariffs, the FOMC believes that the risk of a new, persistent surge remains limited: the effect of tariffs is still considered transitory (although this risk must be monitored), and services inflation continues to decline, albeit very gradually. FOMC members are therefore, for the time being, comfortable with figures above the official 2% target. However, this position is not sustainable indefinitely.
It is nevertheless interesting to note that uncertainty remains high regarding the various possible scenarios – whether it concerns the lasting impact or not of the tariffs, or the reliability and significant revisions of the BLS data. This translates into a particularly divided FOMC: ten members still anticipate at least two additional rate cuts by the end of the year, two foresee only one, and seven envisage none. The amplitude has rarely been so high three months before the end of the year (see chart of the week), although it should be noted that the new voter Stephen Miran, who was sworn in just before the meeting, seems to be distinguished by excessively dovish positions. Donald Trump's hold on the Fed therefore appears for the time being still limited: Lisa Cook ultimately participated in the vote, and no one, apart from the new governor Miran, voted for a 50 bps cut at this meeting.