Fed's Powell and Bowman stress job market fragility as more rate cuts loom
News Summary
Federal Reserve Chair Jerome Powell and Vice Chair Michelle Bowman both expressed concerns about moderating U.S. economic growth and weakening labor market conditions, despite inflation remaining elevated. Powell noted that the unemployment rate has edged up, job gains have slowed, and downside risks to employment have risen. He suggested the Fed is increasingly inclined to prioritize its employment mandate. Last week, the Fed voted to lower interest rates by 25 basis points, the first cut in nine months, and markets widely expect further cuts at the Fed's final two meetings of 2025. Powell also indicated that clearer trade policy means tariffs will likely trigger only a “one-time pass-through” effect on inflation, a slight shift from earlier warnings that tariffs could fuel more sustained cost pressures. Despite expectations of further monetary easing boosting risk assets broadly, crypto markets faced fresh selling pressure. Analysts suggest Bitcoin's divergence from the Nasdaq typically converges, signaling a potential swift rebound for BTC. Additionally, Bitcoin ETFs attracted nearly $1 billion in inflows last week, indicating sustained institutional demand.
Background
The Federal Reserve operates under a dual mandate of achieving price stability and maximum employment. In 2025, under the incumbent U.S. President Donald Trump, economic policy focuses on maintaining a robust job market and addressing inflationary pressures. The Fed's recent 25 basis point rate cut, the first in nine months, signals a potential shift from a tightening to an easing cycle. Trade policies, particularly tariffs under the Trump administration, have been a significant factor influencing economic and inflation expectations. The Fed's updated assessment of tariffs' impact, characterizing it as a "one-time pass-through" effect, likely reflects an understanding and adaptation to the current trade policy environment, crucial for guiding its monetary policy path.
In-Depth AI Insights
What are the underlying strategic implications of the Fed's increasing prioritization of the employment mandate amidst persistent inflation? - This suggests a tactical shift by the Fed, potentially driven by political pressure (the Trump administration's focus on "America First" and job creation) or a belief that inflation is less structural in nature. - There's a risk of stagflation if inflation remains sticky while growth slows, which investors should monitor for potential pressure on corporate earnings and consumer spending. - The Fed's deviation from strict inflation targeting could lead to greater market volatility as participants struggle to re-evaluate its policy reaction function. How might the "clearer trade policy" and its "one-time pass-through" effect on inflation influence the Fed's future rate path, especially under the current administration? - Characterizing tariff effects as "one-time" could be a deliberate downplay to justify a more dovish policy stance. This provides cover for rate cuts, aligning with a potential political desire for lower rates to stimulate the economy. - However, if tariffs persist or expand, the "one-time" effect could become recurrent, challenging this narrative and potentially forcing the Fed to reverse course, creating policy uncertainty. - This narrative might also be aimed at managing market expectations to avoid tariff-induced inflation panic, thereby creating room for easing. Despite expectations of further easing, why are crypto markets facing selling pressure while traditional risk assets broadly rally, and what does this divergence signal? - This divergence could reflect a short-term "buy the rumor, sell the news" profit-taking dynamic, where some investors lock in gains after the initial rate cut announcement. - Crypto assets often exhibit higher beta, meaning they can experience sharper pullbacks even with minor shifts in market sentiment or liquidity. - This short-term divergence might signal that traditional markets are reacting more directly to macroeconomic signals, while crypto markets are digesting both the long-term implications of rate cuts and potential short-term speculative behavior.