Powell's latest speech in-depth analysis: a “neutral” rate cut that returns decision-making to data — all the old tricks!

Core judgment: This rate cut is a combination of “dovish action + hawkish forward guidance,” and in the short term, the Fed has kicked the policy path decision back to economic data.

1. The “Neutral Trap” of rate cuts: completing a phased task

The Federal Open Market Committee (FOMC) decided to lower the federal funds rate target range by 25 basis points to @3.50% - 3.75%. At first glance, this seems like a traditional easing move, but Powell’s wording at the press conference gave it new meaning:

Back to Neutral: Powell emphasized that after three rate cuts, the current policy rate is within the “reasonable estimate range of neutral interest rates” (Neutral).

Policy has exited the zone “restricting the economy.” This indicates that the Fed believes it has completed the correction of the previous “over-tightening to combat inflation.” Unless economic conditions undergo a major change, the door to large-scale rate cuts in the short term is essentially closed.

Clear signal of waiting: The statement added language indicating that the Fed will “carefully assess data, outlook, and risks balance.”

This is a classic “wait-and-see/paused” signal. The Fed is now in a position of “very suitable for holding off,” and the next meeting’s actions will depend entirely on upcoming employment and inflation data.

2. Shift in risk balance: from “anti-inflation” to “supporting employment”

Powell explicitly pointed out that the current risk balance has shifted to “short-term inflation risks leaning upward, while employment risks lean downward.” This marks a subtle change in the Fed’s strategic focus:

Employment becomes the new focus: With unemployment rising slightly to 4.4%, the Fed’s vigilance toward downside risks in the labor market has increased noticeably. In this balance, the Fed fears an employment collapse (unemployment rate surging to 5%) more than short-term inflation stickiness.

Tolerance for tariff-driven inflation: Powell views tariff-induced price increases as a “one-time price level shift,” rather than a sustained inflation process. This statement is significant: it leaves room for the Fed to maintain a dovish stance in the coming months if “inflation data look bad but employment continues to weaken.”

3. Economic outlook and policy forward guidance: dot plot locking in easing space

The Fed’s latest economic projections (SEP) depict a “soft landing V2.0,” but the distribution of the dot plot clearly limits future easing space, indicating one rate cut expected next year.

Strong economic resilience: The 2026 GDP forecast has been raised, citing resilient consumption and strong growth in AI/data center-related investments.

Slow return of inflation: Although core PCE remains at 2.8%, it is expected to gradually approach 2% over the next two years.

Dot plot suppresses bullish illusions:

Median values: The median federal funds rate for 2026 is about @3.4%, and for 2027 around @3.1%, only slightly lower than the current rate.

This is not a “large easing” path, but a “small and slow” adjustment trajectory. The dot plot explicitly limits the rate cut space, indicating that the Fed is unwilling to provide the market with unlimited easing expectations, effectively suppressing long-term bond market “bullish fantasies.”

Serious divergence: The wide dispersion in the dot plot (some believe no cuts this year, others expect multiple cuts in the future) also reflects a lack of consensus among committee members on the future path.

4. Strategy summary: internal disagreement and increased data volatility

The essence of this Fed meeting was to complete the correction of previous excessive tightening and bring rates back to near neutral. They are now in a “fine-tuning and risk hedging” stage.

Decision dilemma: The decision was approved with 9 votes in favor and 3 votes against. This internal disagreement, coupled with the highly dispersed dot plot, suggests difficulty in reaching a unified stance in the committee.

Market implications: This disagreement and the “neutral + wait-and-see” stance instead set the stage for subsequent “data-driven volatility.” Even if only one or two key data points (employment or inflation) surprise on the upside or downside, market expectations for the next meeting could swing sharply.

In summary:

After completing the “correction,” the Fed has fully delegated the choice of policy path to future data performance. For the market, short-term risk assets (like US stocks) have taken a breather, but the medium-term trend will depend entirely on whether the unemployment rate continues to rise and whether inflation can overcome tariff shocks to continue downward.