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Jerome Powell’s FOMC press conference just wrapped up, and despite all the noise, the message from the Fed was remarkably clear.
This meeting wasn’t about debating the next hike. That conversation is over.
The Fed held rates at 3.5%–3.75%, with a 10–2 vote. Two members favored a cut, zero argued for a hike. Powell made it explicit: “A rate hike is not anyone’s base case.” That single sentence effectively confirmed that the tightening cycle is done.
From here, the policy question has shifted. It’s no longer whether rates need to go higher. It’s how long the Fed can afford to wait before cutting.
Inflation: Still There, But Not the Kind the Fed Fears
Powell acknowledged that inflation remains above target, but the source matters. According to the Fed, most of the remaining inflation pressure is coming from tariffs, not excess demand.
Strip out tariff effects, and core PCE is only slightly above 2%. That’s a very different problem than an overheating economy.
Powell also noted that tariff-driven inflation should peak by mid-2026, with disinflation starting later this year. If that path holds, it creates room for easier policy without risking a resurgence in inflation expectations.
Growth and the Labor Market
Once again, the U.S. economy surprised to the upside. Powell highlighted that growth has been more resilient than expected and that unemployment appears to be stabilizing.
Importantly, the Fed believes current policy is already restrictive enough. There’s no urgency to tighten further because the brakes are already applied.
What Comes Next for Policy?
Powell stuck toE to the standard playbook: decisions will be made meeting by meeting, and no future cuts have been pre-committed. That said, the subtext matters more than the formal language.
Rate hikes are no longer being discussed as a realistic path forward. The Fed may hold for longer, but the direction of travel has changed.
The Dollar, Deficits, and Gold
On the dollar, Powell reiterated that the Fed does not target FX levels. He also pushed back on the idea that foreign investors are aggressively hedging out of dollar assets, saying there’s little evidence of that behavior.
On fiscal policy, however, his tone was noticeably firmer. Powell openly called the U.S. budget deficit unsustainable, adding that the sooner it’s addressed, the better. That comment landed immediately in markets and helped push gold to new highs, reinforcing its role as a hedge against long-term fiscal risk.
Independence, Politics, and Tariffs
Powell emphasized that the Fed remains independent and that he does not believe that independence has been lost or will be lost. Policy decisions, he said, will continue to be driven by data, not politics.
On tariffs, the Fed’s view is that they represent a one-time price level adjustment, not a persistent inflation engine. If tariff effects fade as expected, monetary policy can become less restrictive over time.
Rate Cuts: Not Yet, But Clearly Next
Powell described current policy as loosely neutral or somewhat restrictive, noting that the Fed has already done a significant amount of work on rates.
Crucially, no one at the Fed expects the next move to be a hike.
Government Shutdown Risk
Any impact from a potential government shutdown is viewed as temporary, with effects likely to reverse within the quarter. The Fed does not see it as a structural threat to the economy.
The Big Picture
Put all of this together, and the signal is hard to miss.
The Fed is done hiking.
Inflation pressure is fading, with tariffs the main remaining risk.
Financial conditions are no longer tightening.
The next policy move — whenever it comes — is expected to be a cut, not a hike.
This meeting quietly confirmed something major: the tightening cycle is over.
Now, markets aren’t waiting for more restriction.
They’re waiting for the easing cycle to begin.
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