Federal Reserve Chairman Jerome Powell has delivered a sobering message to Wall Street, firmly dousing expectations of imminent interest rate cuts and signalling a protracted period of high borrowing costs. In a closely watched speech, the central bank chief declared that persistent inflationary pressures would likely prevent any policy easing for the foreseeable future.
No Relief for Borrowers as Fed Holds Firm
Powell's hawkish stance means American households and businesses face a continued squeeze from the highest interest rates in over two decades. The Fed's commitment to its 2% inflation target remains absolute, with policymakers demanding 'greater confidence' that price rises are sustainably cooling before even considering a shift in strategy.
Market Optimism Meets Harsh Reality
The announcement sent a chill through financial markets, which had been betting on potential rate reductions as early as spring next year. Powell explicitly pushed back against this speculation, stating that it was 'premature' to conclude that policy was sufficiently restrictive or to speculate on when easing might begin.
A Cooling Labour Market Offers a Glimmer of Hope
In a significant shift, Powell acknowledged that the once red-hot job market is finally showing clear signs of cooling. Recent data indicates a slowdown in hiring and wage growth, factors that typically help ease inflationary pressures. However, the Chairman emphasised that this moderation alone is not enough to declare victory over inflation.
The Long Road Back to 2%
The core personal consumption expenditures price index, the Fed's preferred inflation gauge, remains stubbornly high at 3.5%—well above the target. Powell warned that the journey back to 2% would be ‘bumpy’ and ‘time-consuming’, requiring steady, patient policy. The central bank appears prepared to keep rates at their current restrictive level for as long as necessary, even as the economy begins to feel the strain, setting the stage for a tense waiting game between the Fed, markets, and the broader economy.
