On Thursday, November 7, the Federal Reserve cut interest rates by 25 basis points as expected, lowering the target range for the federal funds rate to 4.5%-4.75%, but the decision statement removed the reference to "gaining confidence in the fight against inflation" or hinted at an open attitude to a pause in the rate cut in December.

Acknowledging the continued cooling of the labor market and "a higher-than-expected inflation data," Powell also made it clear that the Fed will continue to cut interest rates.

The market will focus on whether he will reveal more meaningful clues on the future path of interest rates, whether he will comment on the impact of the US election on the US economic outlook, and the impact of Trump's potential tax cuts, tariffs and spending plans on the Fed's subsequent policy and regulatory regime.

Powell: The Fed will adjust its policy flexibly

Powell said that improved supply conditions have contributed to the strong performance of the U.S. economy over the past year, and that the Fed has made important progress toward its twin goals of full employment and price stability. Overall, the economy and labour market remain resilient.

Despite this, the pace of job creation has slowed recently compared to the beginning of the year, with an average of about 104,000 new jobs per month over the past three months. This part of the slowdown may be related to short-term factors such as strike events and hurricanes in October. Although the unemployment rate is now up from a year ago, it has been on a downward trend in the last three months.

Powell also mentioned that the current labor market tightness has eased compared to before the pandemic in 2019 and has not become a significant source of inflationary pressure. Regarding inflation, he said: "Over the past two years, there has been a marked decline in inflation, with the personal consumption expenditures (PCE) price index rising 2.1% year-on-year as of September, close to the Fed's long-term target of 2%. However, core PCE grew 2.7% year-on-year, still slightly above target, but long-term inflation expectations remained stable. ”

Powell stressed that the Fed is gradually adjusting its monetary policy to a more neutral position and will not follow a fixed path. Future policy adjustments will be made flexibly based on data at the time of the meeting, changes in the economic outlook, and risk assessments. If the economy continues to grow strongly and inflation fails to steadily return to its 2% target, then the Fed may reduce policy constraints (i.e., slow rate cuts) at a slower pace. Conversely, if the labor market underperforms or inflation falls faster than expected, the pace of policy adjustments will be accelerated.

The Fed does not base its decisions on election results

According to reports, Trump may allow Powell to remain chairman of the Federal Reserve until the end of his term in May 2026. Although during Trump's tenure, he repeatedly criticized Powell and the Federal Reserve, arguing that the latter did not move quickly enough to ease monetary policy, which affected the growth of the US economy. In addition, Trump asserted that the president should have the power to intervene in interest rate decisions and be able to express his opinion on interest rate hikes and increases.

In this regard, Powell made it clear that the election will not directly affect monetary policy, and the Fed will not make decisions based on the election results or the possible impact of fiscal policy. He pointed out that even with today's rate cut, policy is still tight overall, stressing that "the task of fighting inflation is not yet complete". However, Powell also hinted that the pace of rate cuts may need to be slowed down in the future as the Fed moves closer to the neutral rate.

The Fed also left room for a pause in interest rate cuts in its latest policy statement. Powell added that the Fed is in no hurry to reach the so-called neutral rate status, cautioning that changes in government policy could have an impact on monetary policy. He explained that all potential economic influences, including government policies, are taken into account in the Fed's economic model.

After Trump won the election, market expectations for future Fed rate cuts changed. At present, the consensus is that the Fed may slow down the pace of interest rate cuts in the coming period. Specifically, the expectation of a rate cut in January has risen to 54% from 44% a week ago, while the probability of another 25 basis point cut in December has fallen slightly from 77% to 67%. Some analysts believe that Trump's victory could lead the Fed to adjust interest rates in a more dovish manner, especially given that his policy could increase inflationary pressures. At the same time, it has prompted a re-examination of what the Fed considers to be a neutral rate that neither dampens nor stimulates the economy.

There will be more data before the December meeting, and a soft landing can still be achieved

The business community expects the economic situation in 2025 to be better than this year, but points to higher geopolitical risks. Powell mentioned that wage growth is still slightly above the level consistent with the 2% inflation target, that the Fed is transitioning to a more neutral stance, and that the key is to find the right pace.

On inflation, Powell said: "While the latest inflation report came in slightly higher than expected, it wasn't enough for us to worry about the overall health of the economy. We remain optimistic about economic activity. Wait until December, and we will receive more data, including a new jobs report and two inflation reports, which will help us make decisions at our December meeting. ”

He also stressed that the Fed is confident of achieving a "soft landing" for the economy, that is, keeping the job market strong while keeping high inflation under control, and that the long-term inflation expectations of the American people also remain stable.

When it comes to the rise in the 10-year Treasury yield by more than 70 basis points since September, Powell believes that this is mainly driven by economic growth expectations rather than the impact of monetary policy. "For now, it appears that Treasury yields are rising not because inflation is beating expectations, but because economic activity continues to outperform."

In addition, Powell noted that the rise in Treasury yields is also related to the Trump administration's plan to significantly increase Treasury bond issuance, leading to an increase in the fiscal deficit. He said the U.S. rising fiscal deficit and overall fiscal policy remain a burden on the economy, and the size of the federal debt has become unsustainable.