Powell hints rate cuts may be over as Fed sees stronger US economy

Core Viewpoint - Jerome Powell, the Federal Reserve chair, has two remaining opportunities to adjust interest rates before his term ends, but he may not need to make any changes due to a positive economic outlook [1][2]. Economic Outlook - The Federal Reserve decided to maintain borrowing costs, with Powell noting a "clear improvement" in the US economic outlook and signs of stabilization in the job market [2][4]. - The Federal Open Market Committee voted 10-2 to keep the benchmark federal funds rate in a range of 3.5%-3.75%, with dissenting votes advocating for a quarter-point reduction [4]. - Recent data indicates accelerating growth, cooling inflation, and steady employment, contributing to a more optimistic economic assessment [5][6]. Political Context - Powell's term will end before June, potentially leading to a new phase in President Trump's campaign for lower rates, which has influenced the Fed's decisions over the past year [3]. - The only officials voting for a rate cut were closely associated with Trump, indicating political pressures on the Fed [3]. Market Reactions - Financial markets showed little reaction to the Fed's decisions, with bond yields remaining stable and the S&P 500 showing minimal changes [7]. Inflation Insights - Powell described the inflation situation as "modestly positive," although he projected that the Fed's preferred inflation gauge would end 2025 at 3%, exceeding the target by one percentage point [8]. Central Bank Independence - Powell emphasized the importance of central bank independence amidst political pressures, including a Department of Justice investigation into the Fed [9][10][11].