The federal reserve has decided, but without certainties. According to Jerome Powell, no rate adjustment will be without consequences. While several central banks have started a drop cycle, the president of the Fed alert on a strategic dead end. In a context where inflation resists and employment vacillate, any decision becomes risky. A strong signal sent to the markets that scrutinize each word from the Fed as a decisive monetary turning point.
In short
- Jerome Powell warns that no decision on interest rates is without risk, in an increasingly uncertain economic context.
- The Fed lowered its 25 basis points, but remains divided on the continuation to be given to its monetary policy.
- Governor Stephen Miran pleads for a more aggressive drop, believing that current rates slow down employment.
- Other members of the more cautious Fed are concerned with an inflation always above the target of 2 %.
A fractured Fed in the face of an insoluble equation
While the Fed has reduced its guiding rates, Jerome Powell revealed the growing dilemma faced by the federal reserve during a speech held on Tuesday in Rhode Island. “There is no way without risk”he assertiverecalling that the central bank must juggle between two fundamental objectives: price stability and full employment.
This position takes place in a context where the Fed decided last week to reduce its key rate by 25 base points, a decision that marks a turning point, but does not solve anything. Powell said that the ” Bilateral risks »Make each action potentially perilous, both for the real economy and for the markets.
Tensions are not only economical, they are also internal to the Fed. The last meeting of the committee revealed strong differences of views:
- Stephen Miran, a new governor and only dissident during the vote, pleaded for a reduction of 50 base points, believing that the current rates are too restrictive;
- He judges that rates should be 2 points lower than their current level from 4 % to 4.25 %, arguing that their maintenance could accelerate job losses;
- Miran is currently on leave of his duties to the White House, which adds a political dimension to his posture;
- For his part, Powell tries to preserve the balance within the FOMC, keeping a midline between prudence and action.
This fracture within the Fed reflects the extent of the uncertainty which currently dominates American monetary policy. While some members advocate rapid action to support the labor market, others fear that too fast relaxation revives inflationary tensions.
Between political pressures and inflationary prudence
Beyond internal differences, the Fed must also deal with increasingly explicit external pressures. President Trump, although we assume official debates, does not spare his criticism of Jerome Powell, whom he accuses of being ” too slowIn the drop in rates.
During his speaking at Rhode Island, Powell was careful not to respond directly to these attacks, but the political climate weighs on the perceived independence of the Central Bank. In parallel, several votes within the Fed call for more restraint.
This is particularly the case of the president of the Atlanta Fed, Raphael Bostic, who said that hewould be “reluctant to support a new drop in October”Due to persistent inflation tensions.
The president of the Fed of St. Louis, Alberto Musalem, argued the last drop, while calling it as a measure“Precaution”intended to limit the risk of degradation of the labor market.
However, he also expressed reservations on the advisor of additional monetary softening. To date, the inflation measured by the PCE index, the metric favored by the Fed, is 2.9 %, well above the target of 2 %. A new figure is expected on Friday. This uncertain context nourishes the debates, but also the hesitations as to the direction that the Fed will take in the coming months.
In this context of monetary uncertainty, Bitcoin finds an alternative barometer role. Active decentralized in essence, it draws the attention of investors to each sign of weakness of fiduciary currencies or hesitation of central banks. If the prudence of the Fed fuels the volatility of traditional markets, it also strengthens the attraction of an active perceived, by some, such as coverage against the errors of monetary policies.
In the short term, this indecision could result in increased volatility on the markets, including in the crypto ecosystem. An overly prudent monetary policy could fuel fears of recession, while too fast relaxation would risk derailing the disinflation process. For investors, reading the monetary calendar is therefore more complex than ever, especially since geopolitical tensions like the Trump trade war will not fail to invite itself into the equation.
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