FED PRESS CONFERENCE SUMMARY:

The Fed has decided to pause the interest rate cut cycle, maintaining the 3.5%–3.75% range after three consecutive cuts, with the reasoning that the US economy remains resilient, the labor market is stable, and inflation, although down from its peak, is still above the 2% target. The Fed removing the language that previously emphasized risks of weakening labor suggests that the risks of inflation and growth are now more balanced, meaning the Fed no longer faces pressure to loosen monetary policy soon, reinforcing the scenario of prolonged high interest rates. However, this decision was not unanimous, as two Fed Governors, Stephen Miran and Christopher Waller, voted against, both supporting an additional 0.25% cut, indicating that within the Fed there remains a softer stance.

In the opening of the press conference, Fed Chair Jerome Powell stated that the US economy surprised him with its resilience. Although surveys show consumer sentiment is quite weak, actual spending remains strong. Hiring has slowed somewhat, but layoffs remain low, indicating the labor market has not weakened. Companies are benefiting from AI through increased productivity, while real estate continues to be the economy’s biggest weakness due to prolonged high interest rates.

When asked about the hawkish tone, Powell emphasized that the Fed has not made any decisions regarding the timing of the next rate cut and will let data guide the entire process. He avoided specifying particular milestones for inflation or the labor market, only reaffirming that risks are now more balanced and that there are no concerning signs in the labor market. This indicates that the Fed is maintaining a cautious but non-committal stance, not rushing to cut but also not signaling overly hawkish policies that could panic markets.

Regarding the possibility of raising interest rates again if inflation increases, Powell confirmed that no one at the Fed currently considers a rate hike as the baseline scenario, reassuring that the peak interest rate is likely behind us. However, maintaining high rates for an extended period remains a priority to ensure inflation truly returns to the target before easing.

On tariffs, the Fed Chair believes most of the impact on inflation has already been reflected, with only slight increases, and if no new tariffs are imposed, inflation is likely to gradually return to 2%. However, core PCE inflation is currently flat and shows no clear progress, making it difficult for the Fed to pinpoint exactly when inflation will start to decline further, although a mid-year scenario remains open.

On AI and the labor market, Powell offers a long-term perspective, suggesting that AI may slow hiring in the short term but will boost productivity, helping GDP continue to grow. Technology often causes temporary disruptions to employment but ultimately leads to higher productivity, greater output, and better wages. The Fed is closely monitoring corporate hiring pauses to assess AI’s real impact on the labor market.

Politically, Powell reaffirmed the importance of the Fed’s independence, especially amid pressure from President Trump and legal issues surrounding the Fed leadership. He declined to comment on the Department of Justice investigation or his personal future after his term as Fed Chair ends.

Overall, Powell is walking a very delicate line. On one hand, he needs to maintain a hawkish tone strong enough not to appear influenced by President Trump; on the other hand, he cannot be too hawkish to avoid weakening the economy, causing financial market volatility, and leaving a negative legacy. This explains why his initial remarks were quite hawkish, but his tone softened throughout the press conference.

The final message from the Fed to the market is that the economy remains resilient enough to withstand high interest rates, inflation is not low enough to justify early cuts, but the long-term trend still points toward easing. In other words, the Fed is in a state of maintaining high rates for a period before gradually reducing them.