Wall Street Reacts To Powell’s “Risk-Management” Rate Cut

As Powell begins his presser, Wall Street’s kneejerk comments start coming in to what the Fed Chair just characterized as a “risk management” rate cut… similar to the rate cut he announced exactly one year ago, only that one was 50bps not 25bps (wonder why).

As expected, Powell is getting a hard time from reporters who have spotted inconsistencies in the decision and rationale compared to the forecasts. Here, the Fed has cut rates and has signaled that in all probability will cut twice more this year. Yet against that it has economic growth speeding up, the jobless rate coming down and inflation back to (just above) target at the very end of the forecast horizon. In particular, he is being pushed on why the Fed has switched over to the jobs part of the mandate. Indeed even in Powell’s own comments, it doesn’t really come across: “Right now, the situation we’re in is that we see, we see inflation, we continue to expect it to move up maybe not as high as we would have expected it to move up a few months ago.“

And while Powell is scrambling to preserve some credibility (especially since exactly one year ago he cut 50bps when the economy was much stronger), here is a snapshot of some of the first comments hitting the tape: 

Ali Jaffery, CIBC Capital Markets

Peering through the dot plot, there’s more division than today’s rate-cut vote suggests. The FOMC is likely divided on its views on the US economy, with some favoring faster easing on risks to the job market (and perhaps other motivations as well), but others are clearly worried about managing through a stagflationary outlook, which is why the overall pace of rate cuts is still far from aggressive. Chair Powell has a tough act to follow in trying to speak on behalf of the committee.

Seema Shah, chief global strategist, Principal Asset Management:

Next year’s dot plot is a mosaic of different perspectives and is an accurate reflection of a confusing economic outlook, muddied by labor supply shifts, data measurement concerns, and government policy upheaval and uncertainty. Overall, though, today’s measured 25 basis point cut allows the Fed to get ahead of a slowdown without overreacting to early signs of strain.

Ira Jersey, Bloomberg Intelligence

In the press conference, will Powell push against the relatively dovish tone? The last few meetings, the opening remarks have been quite neutral, as we showed in our NLP model earlier in this blog. It seems likely he’s at least a tad more dovish, and if not that could be somewhat surprising to the market… The skew of the Dot plot remains for slower cuts this year, but the median year-end 2026 dot not only moved lower, but there are now five members who see rates below 3%.  We had thought the median would be 3.125%, which would have required just one more member at 3.125% to get there. Overall, we think this is a relatively dovish statement with the SEP.

Gregory Faranello, head of US rates strategy for AmeriVet Securities 

The tone overall favors growth concerns right now as the Fed is showing rates still coming despite inflation remaining above the 2% target. The lack of more dissents shows more unity around the pathway to more neutral rates. Overall, a steadfast, methodical pathway down to neutral.

Bob Michele, JPMorgan Asset Management Head of Global Fixed Income

Only one dissent was surprising and it shows the Fed “locked arms” to reduce policy from what was surprisingly restrictive to them 

Anna Wong, Bloomberg Economics

The widely anticipated 25-bp cut showed divisions on the committee. While the median participant expects two more 25-bp cuts this year, almost half of the FOMC expects just one or no more cuts this year. The policy statement and updated Summary of Economic Projections (SEP) display several other interesting contradictions. The policy statement added language to flag increasing downside employment risks, while acknowledging that inflation has moved up. In contrast, officials marked up their growth estimate this year, and lowered the unemployment rate estimates in the SEP forecast horizon.

Democratic Representative Brendan Boyle of Pennsylvania, the ranking member of the Budget Committee,

The Fed isn’t cutting rates because the economy is strong; it’s cutting them because Donald Trump is recklessly sabotaging it. Inflation is climbing, the job market is shrinking and every sign points to stagflation.

Olu Sonola, head of US economic research at Fitch Ratings:

This is lift-off, and the Fed is now all-in on supporting the labor market, signaling a decisively aggressive cutting cycle in 2025. The message is clear: growth and employment are the priority, even if that means tolerating higher inflation in the near term.

Developing