Jerome Powell said he will remain at the Federal Reserve until the ongoing Justice Department investigation into him is “well and truly over,” signalling a direct pushback against mounting political pressure from President Donald Trump and his allies.

The statement comes at a sensitive moment. The Fed has just held interest rates steady for the second time this year, while simultaneously navigating rising inflation risks, a slowing job market, and the economic fallout from the Iran war.

A Leadership Standoff at the Fed

Powell made it clear he is not going anywhere soon.

Even though his term as Fed chair is set to end in May, he said he will:

• Stay on as chair until a successor is confirmed
• Potentially remain on the Fed board until 2028
• Continue serving in an interim role if needed

The issue is that Trump’s nominee, Kevin Warsh, is currently blocked in the Senate, with at least one Republican senator refusing to approve the nomination while the investigation into Powell continues.

That effectively leaves Powell in place, regardless of political pressure.

Probe, Politics, and Pressure

The investigation, led by federal prosecutor Jeanine Pirro, is officially focused on cost overruns related to renovations at the Fed’s headquarters. However, Powell and many economists see it differently.

A federal judge recently dismissed key subpoenas tied to the probe, stating:

“The government has offered no evidence whatsoever that Powell committed any crime other than displeasing the President.”

Despite that, the investigation is expected to continue through appeals, prolonging uncertainty around Fed leadership.

At the same time, Trump has repeatedly criticized Powell for not cutting interest rates aggressively enough, even attempting to remove Fed officials.

Why This Matters for Markets

This is not just a political story. It is a market story.

The Federal Reserve’s independence has long been seen as a cornerstone of US financial stability. Any perception that monetary policy is being influenced by political pressure could:

• Undermine investor confidence
• Complicate inflation control
• Increase volatility across markets

Research consistently shows that central banks under political control tend to keep rates too low, leading to higher inflation over time.

All This Is Happening Amid a Fragile Economy

The timing could not be more critical. The Fed is already dealing with:

• Rising inflation driven by the Iran war and oil prices
• A slowing labor market
• Uncertainty over future rate moves

In this environment, leadership stability is key. Instead, the Fed is facing internal and external pressure at the same time.

Powell’s message is clear: He will not step aside under pressure.

But the situation creates a rare and uncomfortable scenario where: Monetary policy, Politics, and legal battles are all colliding at once.

For markets, the question is no longer just about interest rates.

It is about whether the Fed can remain independent in one of the most uncertain economic moments in years.

Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.

Related: Fed Keeps Rates Steady Amid Rising Inflation: What it Means for Banks

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In a rare public statement late Sunday, Powell said the Department of Justice served the Fed with grand jury subpoenas related to his June testimony before the Senate Banking Committee. Powell said the action should be viewed in the context of sustained political pressure to force faster rate cuts.

“This unprecedented action is not about the renovation or Congress’s oversight role,” Powell said. “Those are pretexts. The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on what will serve the public, rather than following the preferences of the President.”

President Donald Trump told NBC News he had no knowledge of the Justice Department’s actions, while renewing criticism of Powell’s leadership. A DOJ spokesperson declined to comment on the case, saying prosecutors are prioritizing investigations into potential misuse of taxpayer funds.

Political and Market Fallout

The disclosure intensified a long running clash between Trump and Powell over monetary policy. Trump has repeatedly urged sharper rate cuts and questioned the Fed’s independence since returning to office.

Republican Senator Thom Tillis, a member of the Senate Banking Committee, said the threatened indictment calls the Justice Department’s credibility into question and pledged to block confirmation of any Trump nominees to the Fed until the matter is resolved.

Economists and historians warned the episode could undermine confidence in the Fed’s independence, a cornerstone of US economic policy. Peter Conti-Brown of the University of Pennsylvania called the inquiry a low point for central banking in America.

Financial markets showed limited immediate reaction. Rate futures continued to price in two cuts later this year, though the dollar weakened and US equity futures dipped modestly following Powell’s statement.

What Comes Next

Powell’s term as Fed chair ends in May, though he can remain on the Board of Governors until January 2028. That option could limit Trump’s ability to appoint additional Fed governors in the near term.

The investigation also revives scrutiny of the Fed’s renovation project, which the central bank says involves essential upgrades to aging infrastructure, including asbestos removal and electrical and ventilation improvements.

For now, Powell said he intends to continue doing the job he was confirmed to do, while warning that the episode raises a broader question about whether US monetary policy can remain insulated from political pressure.

Related: Federal Prosecutors Open Criminal Investigation Into Fed and Jerome Powell

The post Powell claims the Trump admin threatened him with criminal indictment  first appeared on Finblog.

The probe centers on the Fed’s $2.5 billion renovation of its Washington headquarters and Powell’s testimony to Congress in June about the project. The investigation marks an unprecedented move against the traditionally independent institution that sets US monetary policy.

Related: Powell claims the Trump admin threatened him with criminal indictment 

In a rare and forceful video statement released Sunday night, Powell said the investigation was politically motivated and directly linked to pressure from President Donald Trump over interest rate decisions.

“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President,” Powell said.

Independence Under Pressure

Powell warned that the probe raises fundamental questions about whether the Fed can continue to operate without political interference.

“This is about whether the Fed will be able to set interest rates based on evidence and economic conditions, or whether monetary policy will be directed by intimidation,” he said.

The Department of Justice declined to comment on the investigation. A DOJ spokesperson said the attorney general is focused on investigating potential misuse of taxpayer funds. The White House referred questions to the Justice Department.

Trump denied direct knowledge of the investigation in an interview with NBC News, while renewing criticism of Powell’s leadership, saying the Fed chair was “not very good at the Fed and not very good at building buildings.”

A Long-Running Clash

Trump and his allies have spent the past year publicly pressuring Powell to cut interest rates more aggressively. While the Fed lowered rates three times in the second half of last year, policymakers have recently signalled caution amid inflation risks.

The conflict has also spread to other Fed officials. Trump previously targeted Fed Governor Lisa Cook, whom he fired last year amid allegations that have not resulted in criminal charges. The Supreme Court is set to hear arguments on whether the president had authority to remove her.

The headquarters renovation has become a focal point of criticism from Trump allies, including officials at the Office of Management and Budget and the Federal Housing Finance Agency. The Fed has defended the project, citing asbestos removal and critical upgrades to aging electrical and ventilation systems.

Political Fallout

The investigation immediately drew sharp reactions from Congress. Republican Senator Thom Tillis said he would block confirmation of any new Fed nominee until the matter is resolved. Democratic Senator Elizabeth Warren urged the Senate to halt all Fed confirmations tied to Trump.

Senate Minority Leader Chuck Schumer called the investigation an attack on economic stability, saying it threatens the credibility of the US financial system.

Markets on Edge

Investors and analysts warned the probe could undermine confidence in the world’s most influential central bank.

“This is a deeply disturbing development,” wrote Evercore ISI vice chairman Krishna Guha, adding that it suggests the administration and the Fed are now in open conflict.

The investigation comes as Trump prepares to name Powell’s successor when his term ends in May. Potential candidates reportedly include Kevin Hassett, Kevin Warsh, and Rick Rieder.

For global markets, the episode has revived fears that political pressure could weaken the Fed’s independence, a cornerstone of trust in the US dollar and the broader financial system.

Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.

Related: Wall Street Hits New Records as Markets Shake Off Trump–Fed Tensions

The post Federal Prosecutors Open Criminal Investigation Into Fed and Jerome Powell first appeared on Finblog.

Below is a simple breakdown of what happened, what Powell actually said and what it means for markets and the economy.

1. Quick recap of the decision

• The Fed cut rates by 25 bps, as markets expected.
• The vote was 9 to 3. Stephen Miran wanted a bigger 50 bp cut, while Austan Goolsbee and Jeffrey Schmid wanted no cut.
• The new projections still show only one cut in 2026 and one in 2027, with no cuts penciled in for 2028. In other words, the official path for rates is very shallow from here.
• The Fed also said it will start buying 40 billion dollars of Treasury bills over the next 30 days, after stopping balance sheet runoff.

So the cut itself was small and expected, but the message around it was careful and slightly hawkish.

More about: Fed Set to Cut Rates for Third Time in 2025: What to expect

2. Is the Fed “printing money again”?

What is really happening: The Fed is going to buy short term Treasury bills to keep the financial system supplied with enough reserves. That technically expands the Fed balance sheet, so in a mechanical sense it looks like “printing money”.

But this is not a huge QE stimulus program like during Covid. It is more of a liquidity refill, because reserves had fallen quite a lot while they were shrinking the balance sheet.

So yes, the Fed is adding money back into the system, but for now the size and pace are limited. It helps funding markets and risk assets, but it is not an all in money flood yet.

3. What Powell said

Powell’s message was basically:

1. We are close to neutral: He said rates are now “within the range of plausible neutral”, meaning policy is no longer clearly restrictive or clearly stimulative. That is why he also said the Fed is now “well positioned to wait and see” before doing more.
2. Next move is uncertain, January is open: Powell repeated that the Fed has not decided anything about January. Some officials think the Fed should stop and watch the data, others still want more cuts. So the base case now is something like “hold or cut a bit more, but no hikes”.
3. Tariffs are driving the inflation overshoot: He was very direct here. Powell said it is “really tariffs that are causing most of the inflation overshoot” and that if you strip tariffs out, inflation would be in the low twos already.
   His base case is that tariffs create a one time jump in prices, not a permanent inflation spiral, as long as the Fed does not let that shock turn into a wage price loop.
4. Labor market is cooling, not collapsing: Powell said the economy “does not feel like a hot economy”.
   He noted:
   • Official payroll data are probably overstating job growth, and the Fed’s internal view is closer to minus twenty thousand jobs per month.
   • Job finding is weaker, layoffs are starting to rise in some areas, and immigration has dropped.
     Because of that, the Fed has shifted its risk focus more toward employment, not only inflation.
5. AI is visible but still small in the jobs story: He admitted companies are talking about AI when they cut staff or freeze hiring, but he said AI is “not a big part of the story yet” for the labor market. The bigger issues are tariffs, slower demand and lower labor supply.
6. Housing is a problem the Fed cannot fix: Powell was very clear that a 25 bp cut will not solve housing affordability. The real problem is low supply and locked in cheap pandemic mortgages, not only high rates. The Fed can move borrowing costs a bit, but cannot build new homes.
7. No risk-free option for policy: His key line was: “There is no risk-free path for policy.”
   The Fed must choose between:
   • cutting too little and risking a weak labor market, or
   • cutting too much and letting inflation re accelerate.

Right now he thinks downside risks to jobs have risen, so the balance has moved slightly toward protecting employment, while still promising to get inflation back to 2 percent.

4. What does this all mean for markets

Short term

• The combination of another cut, no talk of hikes, and Treasury bill purchases is supportive for risk assets.
• That is why stocks pushed to, or close to, new highs and bond yields slipped after the decision.
• Markets still believe the Fed will deliver more easing than the dot plot suggests in 2026. Fed swaps are pricing around 50 bps of cuts next year, not just one.

Medium to long term

If Powell is right and tariffs are a one time inflation shock, the path he described is very bullish for asset prices:

• productivity speeding up, helped partly by AI
• growth around 2 percent or a bit more
• inflation drifting back toward 2 percent
• rates slowly moving lower over the next few years

The risk is political and policy-driven: If tariffs keep rising, or stay in place longer than expected, the Fed may have to stay tighter than markets hope. A new Fed chair chosen by Trump who pushes for rapid cuts could fuel another asset boom, but if inflation heats up again, a later tightening cycle could be painful.

More about: Trump Says Next Fed Chair Must Cut Rates Immediately

Today’s decision: another small cut, a divided committee, and a clear hint that the Fed may pause for a while. Powell’s message:

• tariffs are the main source of higher inflation right now
• the labor market is quietly weakening
• the Fed has moved its balance of risks a bit toward protecting jobs
• but it still promises to “deliver 2 percent inflation.”

• For markets: liquidity support and a patient Fed are positive for stocks and other risk assets, as long as tariffs do not force a new inflation fight later.

So in simple terms, the Fed is easing, but carefully. Powell is trying to walk a very thin line between helping a softer labor market and not restarting an inflation problem that would hurt the economy and investors later on.

Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.

The post Fed Powell Cuts Again: Here is why first appeared on Finblog.

1. Tariffs & Inflation — A Bump, Not a Trend (So Far)

Powell admitted goods prices are rising due to tariffs:

“We have begun to see goods prices showing through into higher inflation … the increase in goods prices accounts for most of the increase in inflation … This year.”

But he was also clear:

“Inflation will move up this year because of the effects on goods prices from higher tariffs, and that will be a one-time effect.”
“We will make sure that this one-time increase in prices does not become an ongoing inflation problem.”

What that means: tariffs are pushing prices now — but Powell’s betting they won’t fuel permanent inflation, at least under baseline expectations.

2. Labor Market Isn’t Looking So “Solid” Anymore

Powell was straightforward: the labor market is cooling.

“We have seen … a very different picture of the risks to the labor market.”
“Downside risks to employment have shifted balance of risks, prompting last week’s rate cut.”

And he framed the rate cut as a response to that cooling:

“You could think of this … as a risk-management cut … now we see the revisions and we see the new numbers … the labor market is really cooling off.”

So: he’s watching job gains, unemployment, softness in hiring, markets are vulnerable if these go further down.

3. No Preset Route — Every Move Is Data-Driven

One of the strongest messages: Powell pushed back on the idea that the Fed has a fixed path.

“Two-sided risks mean there is no risk-free path.”
“This policy stance, which I see as still modestly restrictive, leaves us well positioned to respond to potential economic developments.”

Translation: don’t expect the Fed to promise a series of cuts. Powell wants flexibility.

4. Valuations Are “Fairly Highly Valued,” But No Panic Yet

Powell flagged that stock and asset prices are up there:

“Stock prices appear ‘fairly highly valued,’ but I do not see elevated financial stability risks at this time.”

That said, he doesn’t think it’s the Fed’s job to tame asset valuations directly. He’s more concerned about inflation, employment, and the balance between them.

Gen Z, Skills & the ‘Low-Hire, Low-Fire’ Economy

For years, Powell said jobs were “strong.” Not today. He warned: “You can’t really say the labour market is solid anymore.”

And the weakness is hitting young people hardest. Powell said if Gen Z grads don’t have tech skills, “you’re increasingly left with less attractive employment options.” He described today’s climate as a “low-hire, low-fire economy”, firms aren’t cutting staff, but they’ve slowed down hiring while waiting on tariff and policy clarity.

He tied the challenge to education: “I’m struck by how U.S. educational attainment kind of plateaued.” In his view, schools aren’t keeping up with the AI economy. The Fed can’t fix that, Powell admitted bluntly: “We can’t fix the education system. That’s for legislators and the private sector.”

In other words, if you’re coming into the workforce without AI or tech skills, you’re getting crushed.

Market Reaction Right Now

Stocks cooled a bit after hits to tech; Nasdaq slipped, Dow held up better. Investors seem to be digesting the risk that Powell may slow down the pace of cuts.

Treasury yields eased slightly, as bond markets adjust to uncertainty about how many cuts (if any) are realistic this year.

Gold continued to shine as a hedge, likely benefiting from the cautious tone and “no risk-free path” warning.

What to Watch Next

The upcoming PCE inflation report — if core inflation sticks above/remains elevated, Powell could jack up caution.

Labor data: slowdown in job creation, unemployment, wage growth. If softening accelerates, the odds of more cuts rise.

Tariff developments: which ones stick, which ones expire, and how much companies end up passing them down.

Financial conditions: any sign that markets or asset valuations are overleveraged will get more attention.

Powell is signalling an in-between moment. The rate cut is done, but no rush now. Inflation is messy, jobs are weakening, and every decision will be data-dependent. Markets are up at the highs — but with a clear caution flag waving.

Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.

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Powell Frames Cut as “Risk Management” Amid Weakening Jobs, Tariff Risks

The Fed’s Rate Cuts: What Drives Decisions — And Why Now

The post Takeaways from Jerome Powell: No Risk-Free Path, Weak Jobs, and AI Winners first appeared on Finblog.

Related: The Fed’s Rate Cuts: What Drives Decisions — And Why Now

Powell’s Key Messages: What He Said and Why

Fed Chair Jerome Powell struck a careful balance in his press conference, highlighting both the risks to the labour market and the uncertainty around inflation. His remarks offered clarity on why the Fed acted, and why it didn’t go further.

No preset path

“Individual forecasts are not a plan. We’re not on a preset course. Decisions will be based on the incoming data and the balance of risks.”

Meaning: No automatic sequence of cuts; every meeting is live.

Why cut today? Risk management

“You could think of today’s cut as a risk-management cut.”
An insurance move to cushion a weakening job market without declaring an emergency.

Labor market slipping

“Job gains are now running below the breakeven rate.”
“Revised jobs numbers mean the labor market is no longer solid.”
“The moderation in GDP growth largely reflects consumer spending slowdown.”
Hiring is too soft to keep unemployment from rising; consumer demand has cooled.

Inflation still elevated, but expectations anchored

“Inflation has risen recently, remains somewhat elevated.”
“Beyond next year most inflation-expectation measures [are] consistent with our 2% goal.”
Near-term price pressure persists, but longer-run credibility remains intact.

Tariffs: base case vs. uncertainty

“The base case is that tariff-driven price increases will be short-lived.”
“The overall effect of tariffs on inflation remains to be seen.”
“Possible tariffs are a reason for some slowing in the labor market.”
“Expect tariff-driven price increases to continue this year and next.”
Tariffs are lifting some prices and may be nudging hiring lower; Fed treats the impact as mostly one-off but is not ruling out persistence.

No broad support for a bigger move

“There was not widespread support for a 50 basis point cut today.”
Committee preferred a cautious 25 bps step over an aggressive cut.

Regarding Powell’s frame:

• Policy is data-dependent, not pre-committed.
• Risks are two-sided: softer jobs vs. still-elevated inflation.
• Yesterday’s move is insurance, not a pivot to rapid easing.

Powell and the statement pointed to a cooling labor market (revisions and softer payrolls), moderating growth led by slower consumer spending, and inflation that has risen recently but remains off the 2022 highs. The balance of risks now tilts toward employment, hence an insurance cut, with further moves data-dependent, not pre-committed.

Powell made clear the Fed isn’t on autopilot. They’ll move meeting by meeting. Yesterday’s cut was more of a safety cushion than the start of a big easing cycle.

How Markets Reacted Yesterday

Stocks: Choppy to mixed, Dow up, S&P 500 flat to slightly lower, Nasdaq down as traders weighed “dovish cut” vs. cautious guidance.

Bonds & Dollar: Yields wobbled; the dollar’s post-decision slide reversed into a steadier tone as investors parsed Powell’s caveats.

Banks’ prime rate: Major banks cut prime from 7.50% → 7.25%, passing the move into consumer/business credit benchmarks.

Related: Fed approves quarter-point interest rate cut and sees two more coming this year

How We Opened Today — and What’s Next

Futures in the U.S. and Europe nudged higher overnight as investors grew more comfortable with a gradual easing path; Asia largely bought the dip. Oil eased on growth worries; gold hovered near highs after a volatile post-Fed pop.

Near-term market direction now hinges on:

1. whether incoming jobs and inflation data confirm cooling without re-accelerating prices, and
2. Powell’s follow-through — i.e., if the Fed validates the two-more-cuts glidepath or pivots back to “wait-and-see.” Analysts warn the cut came with caveats, so rallies may be fragile if data disappoint.

What It Means

For borrowers: Mortgages, HELOCs, auto loans and cards won’t plunge overnight, but the prime-rate cut and lower Treasury yields are a first step toward easier credit — especially if two more cuts land this year.

For stocks: Lower rates are supportive, but tech/growth may remain headline-sensitive; cyclicals and rate-sensitives (housing, retail) typically benefit if borrowing costs keep easing.

For crypto/commodities: Easier policy and a softer dollar tend to support Bitcoin and gold; oil tracks demand expectations, which are still uncertain if growth slows.

The Fed delivered the cut “everyone expected,” but Powell’s message was cautious: jobs are wobbling, inflation isn’t tamed, and policy is not pre-set. Markets like the direction, just not too fast, and only if the data cooperate.

The post Powell Frames Cut as “Risk Management” Amid Weakening Jobs, Tariff Risks first appeared on Finblog.

Related: Nvidia Earnings, Fed Signals, and Inflation Data: A Pivotal Week for Markets

Last Week in Review

Markets churned through a volatile week of Fed signals, earnings, and trade jitters:

• Early week selloff — Tech and crypto led losses as investors rotated into defensive sectors, shedding over $1T in market cap.
• Earnings mixed — Retailers like Home Depot and Lowe’s beat expectations, while Target flagged leadership changes and Walmart warned of tariff-driven price hikes.
• Fed minutes revealed a divided committee: some members pushed for rate cuts to offset labor softness, while others cautioned that tariff inflation remains a risk.
• Thursday pain — Hurricane Erin headlines and trade tensions drove stocks into a fifth straight decline.
• Friday rebound — Jerome Powell’s Jackson Hole speech hinted at September cuts, sending the Dow to record highs and calming volatility. Traders now price in an 85% chance of a 25bps cut next month.

Intel grabbed attention late in the week by confirming the US government would take a 10% stake via CHIPS Act grants, marking an unprecedented public-private tie-up in semiconductors.

How We Opened This Week

Markets in Asia opened strong Monday, with China blue chips at three-year highs and Japan’s Nikkei edging higher. Industrial metals rallied after Powell’s dovish tilt, as a weaker dollar boosted demand.

But in Europe and US futures, the mood was more restrained. The Stoxx 600 slipped around 0.2% and S&P 500 futures edged lower, as traders weigh whether last week’s optimism was a temporary burst or the start of a new leg higher.

Powell, Trump, and the Stakes Ahead

US Federal Reserve Chair Jerome Powell’s signal that the central bank will likely cut interest rates next month triggered last week’s market rally, but a dearth of clear data has investors on edge. Powell nodded to rising inflation as a result of President Trump’s tariffs, but made no mention of Trump’s pressure campaign to lower borrowing costs. While Trump may soon get his wish, it’s unclear how much rates might fall, especially if upcoming employment and inflation data are mixed.

Markets could be tested this week when chip giant Nvidia reports its earnings on Wednesday. As economist Paul Krugman warned, “If the AI boom goes bust, the odds are high that the US economy will be plunged into a recession.”

Fear & Greed Index

CNN’s Fear & Greed Index sits in Greed territory, showing investor sentiment has turned bullish — but also highlighting the risk of overconfidence as markets price in rate cuts.

Today’s Key Events

• 08:30 – Chicago National Activity Index
• 10:00 – US New Home Sales
• 10:30 – Dallas Fed Manufacturing Business Index
• 15:15 – Fed’s Logan speaks
• 19:15 – Fed’s Williams speaks

Earnings

• Before Open – Pinduoduo ($PDD)
• After Hours – Semtech ($SMTC), HEICO ($HEI)

After Powell’s dovish shift, the spotlight this week turns to Nvidia’s blockbuster earnings (Wed) and the Fed’s preferred inflation gauge, Core PCE (Fri). Both could reset the market tone after last week’s relief rally.

For now, sentiment is cautiously optimistic — but with tariffs, inflation risks, and an AI-driven market vulnerable to disappointment, Wall Street’s “Powell bounce” faces its first real stress test of the fall.

Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.

Related: Federal Reserve Explained: How It Shapes Stock Market and Economy

Jerome Powell signals Fed may cut rates soon even as inflation risks remain

EU Speeds Up Digital Euro Plans After US Stablecoin Law, Considers Ethereum and Solana

The post Markets Open Steady After Powell’s Dovish Tilt, Eyes on Fed & Nvidia first appeared on Finblog.

What Powell actually said

Dual-mandate tension: Powell emphasized that risks are now more two-sided: inflation remains “somewhat elevated,” but downside risks to employment are rising. In his words, the labor market sits in a “curious kind of balance,” where both labor demand and supply have cooled.

Tariffs = base-case shock, not spiral: The Chair framed the tariff impact as a likely one-time price level shift that works through supply chains over time, rather than a persistent inflation engine. He stressed the Fed can’t take anchored expectations for granted, but the reasonable base case is short-lived effects.

Independence & process: Powell leaned into Fed independence, noting any decision will be made “solely” on the data and balance of risks—an indirect rebuttal to political pressure.

Framework reset: He outlined five-year updates to the Fed’s policy framework: scrapping the 2020 “makeup” idea of tolerating overshoots (FAIT’s overshoot nuance) and dropping “shortfalls” language on employment, while re-affirming the 2% inflation target. The message: preemptive action is back on the table when warranted, but not today’s base case.

What it means for September

Base case: Powell didn’t pre-commit, but this is the strongest hint yet that a quarter-point cut in September is likely if the next data (notably Aug. jobs on Sept. 5 and late-month inflation reads) don’t surprise hotter.

Pace & path: Expect a careful, measured easing—more “fine-tuning” than slash-and-dash. Powell said policy is only modestly restrictive, implying limited cumulative cuts unless growth weakens more decisively.

Politics vs policy: The Chair acknowledged the noisy backdrop but anchored decisions to the data; political pressure isn’t the driver—the labor-market drift and contained inflation risks are.

Why markets moved

• Equities: Relief rally. A data-dependent dovish tilt reduced tail risk of a prolonged “higher for longer.” Dow surged >600 pts intraday; tech and rate-sensitives outperformed as the discount rate impulse turned friendly.
• Rates: 2-yr Treasury yield fell ~8–10 bps toward ~3.7% as traders added to September-cut bets; the 10-yr eased to the low-4.2s%. Curve bull-steepening reflected cut soon, not a recession now.
• Dollar: The DXY slipped on easier-policy vibes; rate-sensitive FX (e.g., yen, AUD) popped.
• Probabilities: Market odds for a September 25 bp cut pushed higher (prediction venues and fed-funds pricing jumped on the headline language).

(Intraday levels move fast; the direction—stocks up, yields down, dollar softer—was the clean initial read.)

The economic read-through

If cuts start: Mortgage, auto, and corporate borrowing costs inch lower, supporting consumption & capex into year-end. With tariffs lifting some prices temporarily, Powell is trying to thread the needle—ease enough to guard jobs without reigniting inflation.

If data re-heats: A sticky re-acceleration in core prices or a snapback in wage growth could delay the first cut. Powell explicitly left room to “proceed carefully.”

Tariffs & growth mix: The Fed’s base case treats tariffs as a level shift (not a new inflation trend). That reduces the need to keep rates elevated for long if expectations stay anchored.

Sector & asset implications (near-term)

• Rate-sensitives: Tech, housing, utilities, REITs tend to benefit from lower discount rates and cheaper financing.
• Financials: Net interest margins can compress on cuts, but credit quality support from a softer landing helps.
• Cyclicals: If the cut boosts confidence while inflation stays contained, industrials & consumer discretionary can catch a bid.
• Dollar/commodities: A softer dollar often supports gold & commodities; tariff dynamics remain a swing factor for input costs.
• Crypto: Liquidity-sensitive risk assets, including crypto, historically like easier policy; volatility can still spike around data.

What to watch next

1. Data into the Sept. 16–17 FOMC:
   • Jobs (Sept. 5) — signs of labor cooling vs. outright weakness.
   • Inflation (late Aug/early Sept prints) — do tariffs stay a one-off bump?
2. FOMC tone & dots: Even if they cut, watch guidance on the pace from here.
3. Tariff trajectory: Any policy changes that alter the path or breadth of levies = direct inputs to the Fed’s calculus.
4. Board dynamics: Ongoing governor drama (e.g., calls for resignations/investigations) and potential seat changes can shift the balance of views, but Powell’s center still sets the tone.

Powell didn’t announce a cut—he set the stage for one. By calling out rising downside risks to employment while treating tariff inflation as transient, he gave markets the green light to price a September trim, with a slow, data-led path thereafter. Risk rallied, rates fell, and the dollar slipped—not because the Fed is caving to politics, but because the data now point to a gentler policy hand.

Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.

Related: Federal Reserve Explained: How It Shapes Stock Market and Economy

The post Jerome Powell signals Fed may cut rates soon even as inflation risks remain first appeared on Finblog.

What Is the Federal Reserve and Why Was It Created?

The Federal Reserve was created in 1913 after a series of banking crises shook public trust in the US financial system. Before the Fed, banks often failed during panics, leaving ordinary people without savings and businesses without credit. The Fed’s main mission was to create stability in the banking system and prevent collapses like the 1907 Panic, when stock markets plunged and banks ran out of money.

Over time, the Fed’s role expanded far beyond banking. Today, its main goals are:

• Keep inflation stable (avoid prices rising too fast).
• Support maximum employment (make sure jobs are plentiful).
• Ensure financial stability (stop crises from spreading).

This is why the Fed is called the “central bank of the United States.” It doesn’t just serve banks—it indirectly shapes the lives of all households, companies, and investors.

The Fed isn’t just one building in Washington. It’s a system:

• Board of Governors in Washington, D.C. — 7 members appointed by the President.
• 12 Regional Federal Reserve Banks — from New York to San Francisco.
• FOMC (Federal Open Market Committee) — the Fed’s core policy-making team (12 voting members, including Chair Jerome Powell).

When you hear “Powell speaks” or “FOMC decision,” this is the group deciding whether to raise, cut, or hold interest rates.

How the Fed Affects the Economy

The Fed’s most powerful tool is setting the federal funds rate, which is the interest rate banks charge each other for overnight loans. Even though this sounds technical, it influences the entire economy—credit cards, mortgages, business loans, and even global capital flows.

The Fed doesn’t directly “print money” or “control stocks.” Instead, it influences the economy through three main tools:

1. Interest Rates (Federal Funds Rate)
   • This is the interest banks pay to borrow from each other overnight.
   • When the Fed raises rates, borrowing becomes expensive → businesses invest less, consumers borrow less → economy slows ( and stock markets usually fall)
   • When the Fed cuts rates, money is cheap → businesses expand, consumers spend more → economy grows (and stock markets usually rise)
2. Quantitative Easing (QE) and Tightening (QT)
   • QE = Fed buys bonds and injects money into the system → stimulates growth.
   • QT = Fed sells bonds or lets them expire → pulls money out → slows economy.
3. Forward Guidance (Communication)
   • Markets don’t just react to what the Fed does, but also to what it says.
   • Example: If Powell hints that “inflation is under control,” stocks may rally even if rates don’t change.

The Fed uses these rate changes to cool the economy when inflation is too high, or to stimulate growth when the economy is weak.

Historical Fed Moves and the Stock Market

The stock market has always been highly sensitive to the Fed’s decisions. History shows clear patterns of how markets react:

• Rate Hikes (raising rates): Often lead to falling stock prices, especially in growth sectors like tech, since higher rates reduce the value of future earnings.
• Rate Cuts (lowering rates): Usually boost stocks, especially cyclicals like retail, autos, and housing, as consumers borrow and spend more.

Here are some key moments:

• 1980s Volcker Era: Fed hiked rates above 15% to crush inflation. Stocks struggled in the short term but later boomed once inflation was controlled.
• 2008 Financial Crisis: Fed cut rates to near zero, launched QE (quantitative easing), and the S&P 500 began one of the longest bull markets in history.
• 2020 Pandemic: Fed slashed rates to zero again, providing massive liquidity. The S&P 500 rebounded 70% in less than a year.
• 2022–2023 Inflation Fight: Powell raised rates aggressively, leading to sharp corrections in the S&P 500 and Nasdaq.

Jackson Hole Effect: Powell’s Speeches Move Markets

Powell’s yearly Jackson Hole speeches are famous for triggering big stock moves because investors look for hints on future Fed policy.

• 2020: Sparked an initial rally with dovish comments, but reversed later.
• 2021: Dovish tone boosted stocks +0.9% the same day.
• 2022: Hawkish warning led to a -7.9% drop in the S&P 500 within five days.
• 2023: Slightly negative, -1.4% slide.
• 2024: Flat at first, but then -4.1% within a week.

This shows how even words from the Fed Chair can change global markets instantly.

Interest Rates and the Stock Market

Interest rates are the bridge between Fed policy and investor portfolios. Understanding this link is essential:

Lower Rates → Stocks Up

• Borrowing becomes cheaper, helping companies expand, boost earnings, and take more risks.
• Investors leave low-yielding bonds and move into stocks, raising demand.
• Growth stocks (like tech) usually outperform, as future profits look more attractive when discounted at lower rates.

Higher Rates → Stocks Down

• Companies face higher borrowing costs, reducing profits and cutting back on expansion.
• Bonds become more attractive versus risky stocks, pulling money out of equities.
• Dividend stocks and defensive sectors (utilities, healthcare) often outperform.

This push-and-pull explains why markets obsess over every Fed move.

How the Fed Responds to Stock Market Moves

The Fed doesn’t officially target stock prices—but it watches them closely. If a stock crash threatens the economy (like in 2008 or 2020), the Fed steps in with cuts or liquidity injections.

But when stocks are booming too much, fueling bubbles, the Fed may tighten to prevent overheating. This “dance” between Wall Street and the Fed is sometimes called the Fed Put—the idea that the Fed won’t let markets fall too far.

The Fed and Crypto

Cryptocurrencies like Bitcoin are also deeply influenced by the Fed.

• When rates are low: cheap money fuels risk-taking, and investors pile into speculative assets like crypto. The 2020–2021 crypto boom was fueled by ultra-low rates and stimulus checks.
• When rates rise: liquidity dries up, and crypto often suffers as investors flee to safer assets. This happened in 2022, when Bitcoin fell from nearly $69,000 to $16,000 during the Fed’s tightening cycle.

So while Bitcoin is called “digital gold,” it often moves like a high-risk tech stock when Fed policy shifts.

What Drives Fed Decisions?

The Fed doesn’t act randomly. Its choices are guided by data:

• Inflation (CPI, PCE, core inflation) – If prices rise too fast, the Fed hikes.
• Employment data (jobs reports, unemployment rate) – Weak jobs = cuts, strong jobs = hikes.
• GDP growth – Too hot = hikes, too weak = cuts.
• Global risks – Wars, financial crises, pandemics can force unexpected moves.
• Market conditions – Sharp selloffs may influence emergency interventions.

This is why investors track economic calendars so closely—every jobs report, inflation release, and Powell speech can shift Fed policy expectations.

Why Inflation Is Central to Fed Policy

The Fed has a “dual mandate”:

1. Keep inflation around 2%.
2. Maximize employment.

When inflation rises too fast, the Fed hikes rates. When jobs are at risk, it cuts rates. Striking that balance is tricky, and markets constantly try to guess which way the Fed will lean.

Key Takeaways

• The Fed was created in 1913 to stabilize the US banking system but now shapes the entire global economy.
• Its main tool—interest rates—directly impacts stock prices, crypto markets, and economic growth.
• Rate cuts usually boost risk assets, while hikes slow them down.
• History shows that Fed decisions have repeatedly sparked both bull and bear markets.
• Powell’s speeches, especially at Jackson Hole, often trigger immediate market swings.
• Understanding the Fed isn’t optional—it’s essential for anyone investing in stocks, bonds, or crypto.

Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.

LIVE: Fed Chair Jerome Powell’s Keynote Address at Jackson Hole Economic Policy Symposium 2025

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The post Federal Reserve Explained: How It Shapes Stock Market and Economy first appeared on Finblog.

Investors expect him to subtly signal support for a September rate cut, but not commit outright. How he frames inflation, labor health, and policy strategy will determine markets’ direction.

FOMC minutes earlier this week underscored the Fed’s dilemma: inflation pressures remain sticky, while the labour market shows softening signs. Powell is expected to strike a cautious balance, acknowledging political heat from the Trump administration while trying to keep the Fed’s independence intact.

• Goldman Sachs expects Powell will stop short of explicitly signaling a cut, but hint strongly enough that markets price it in.
• Evercore ISI says Powell will likely avoid pre-committing, stressing instead the Fed’s longer-term strategy on inflation.
• Deutsche Bank believes Powell could roll back the “flexible average inflation targeting” framework from 2020 and return to preemptive action against inflation.

At the same time, Fed officials remain divided: Atlanta’s Bostic and Cleveland’s Hammack are skeptical about cuts now, while Governors Waller and Bowman are openly pushing for one.

Wall Street’s Take: Calm or Storm?

The mood across U.S. markets is subdued:

The S&P 500, Dow, and Nasdaq all slipped by 0.3–0.4%—marking a fifth straight day of declines.

Market sentiment has cooled dramatically: rate-cut expectations for September have fallen from over 90% to around 74%.

Wall Street’s nerves were also rattled by Walmart’s miss on earnings, dragging consumer sentiment and reinforcing tariff-driven inflation concerns

Bond Markets: Yield Tensions Ahead

Treasure markets are quieter than usual, but poised for shifts:

The 10-year Treasury yield remains stuck in the 4.2%–4.34% range, with volatility at its lowest in over 3½ years.

Historically, past Jackson Hole speeches from Powell have triggered a ~21 basis point rise in 10-year yields and roughly a 2% dip in the S&P over the following month. The stakes are high.

Global View: Trends Beyond the US

Markets overseas are reacting in kind:

Asian equities remain mixed: Japan’s Nikkei slipped, but China’s markets rose 0.4–0.7%.

Investors in Europe, particularly in sectors like industrials and utilities, are watching currency and capital flows closely—dovish cues from Powell could favor the euro and lift regional equities.

Scenarios to Watch Post-Speech

1. Hawkish Tone (Less Dovish than expected):
Markets recalibrate. S&P could dip further, bond yields and the dollar rise on tightened expectations.

2. Dovish Tilt (More accommodative than expected):
Markets rally briefly—but may rotate away from mega-cap tech. Commodities and non-U.S. equities could see a lift.

3. Status Quo (Exactly as expected):
Markets could “sell the news” amid the speech, especially if the tone is balanced—no fireworks, just clarity.

Market Snapshot (Before Powell Speaks)

Markets are waiting—and worried. Powell’s speech could shift the September rate-cut odds and reshape markets across asset classes. Whether it’s a shove toward optimism or a warning of patience, Jackson Hole may set the tone for the Fed’s path forward.

Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.

Related:

Markets Brace for Jackson Hole as Fed Faces Trump Pressure and Policy Uncertainty

Morning Bid: Jackson Hole Opens Under Trump’s Shadow

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The post Jerome Powell at Jackson Hole: A Defining Moment, Markets Brace for Impact first appeared on Finblog.