Powell’s Caveats Temper Market Cheers After Fed’s First Rate Cut This Year

The Federal Reserve trimmed its benchmark interest rate by 25 basis points to 4.00-4.25% on Wednesday, but Chair Jerome Powell’s warnings about sticky inflation and labor-market risks left investors cautious into Thursday.

In his post-meeting press conference, Powell framed the quarter-point cut as a risk-management move rather than a policy pivot, emphasizing that future adjustments will depend tightly on incoming data.

Economic Outlook Remains Uncertain

Powell pointed to slower job growth and an upward drift in inflation readings since mid-year, noting that downside risks to employment now slightly outweigh upside inflation risks. He underscored the Fed’s commitment to its dual mandate of maximum employment and 2% inflation, but warned that incoming tariff-driven price spikes could prove more persistent than expected.

Market Reaction Mixed

• U.S. equity futures barely budged as traders weighed Powell’s caution against renewed hopes for easier policy.
• Treasury yields initially dipped on the rate cut but turned higher as Powell’s remarks signaled a measured pace for future easing. The 10-year yield climbed to 4.05% by mid-morning, up 2.5 basis points.
• Oil prices extended declines, pressured by concerns that tepid growth and higher rates could curb fuel demand.

Next Moves in Focus

With the Fed forecasting two additional cuts this year-contingent on a softening labor market and contained inflation-Powell stressed “we are not on a preset path.” He reiterated that the Committee remains prepared to adjust policy as warranted, keeping both sides of its mandate in balance.