The Federal Reserve left its policy rates unchanged at its latest meeting, in line with expectations and marking the final decision under Chair Jerome Powell. Despite ongoing pressure from the White House for lower rates and growing internal disagreement within the Fed, inflationary pressures argue against easing, as three committee members noted.
While several central banks, including the ECB, are moving towards tighter policy to contain inflation, the Fed is still considering whether additional rate cuts are feasible.
This dynamic suggests a possible narrowing of the rate differential between the US and other economies, which could weigh on the US dollar.
An unexpected continuity
The key development lies in Jerome Powell's decision to remain on the monetary policy committee beyond the end of his term as chair. This meeting had been expected to mark his departure.
Historically, Fed Chairs have left the institution at the end of their mandate. Powell, whose term is ending, has chosen instead to stay on as a committee member until early 2028. This prevents Donald Trump from appointing a replacement at this stage.
Although Kevin Warsh has been selected to succeed Powell as Chair, the anticipated appointment of a new committee member aligned with rate cuts will not take place immediately.
With Powell staying and several members committed to institutional independence, Warsh's influence may be more limited. This outcome is likely to reassure investors.
Given the currently attractive yield levels, we continue to invest in US sovereign debt across all our portfolios. See our free asset allocation strategy for more insights: https://www.euroconsumersinvest.org/news/stocks-rally-as-bonds-remain-under-pressure