David Kelly, JPMorgan’s chief global strategist, believes the Fed is taking a calculated approach to monetary easing. “The new projection of only two rate cuts in 2025 is not surprising. The central bank is clearly laying a stake in the ground to signal a measured path,” Kelly said during an interview with CNBC International.
He also suggested that the Fed’s stance may be an effort to resist potential pressures from the administration as the political landscape evolves. “This is their way of postponing any clashes with the administration in the coming years,” Kelly added.
The decision wasn’t without dissent. Cleveland Fed President Beth Hammack opposed the rate cut, favouring a hold instead. This marks the second dissent in recent months, with Fed Governor Michelle Bowman expressing a similar stance in September.
Fed Chair Jerome Powell acknowledged the challenges in navigating monetary policy at this juncture. “Today’s decision was a closer call, but it was the right call,” Powell remarked, highlighting the delicate balance between fostering maximum employment and controlling inflation.
Also read: Fed signals slower rate cuts amid rising inflation, upgraded GDP forecasts
Powell emphasised that the central bank is now in a less restrictive position after reducing rates by a full percentage point since September. “We can afford to be more cautious as we assess future adjustments,” he added.
The Fed’s updated economic projections reflect optimism about GDP growth, which is expected to remain solid at around 2% over the next few years. However, Powell warned against moving too slowly or too quickly, as either could undermine progress on employment and inflation.
The rate decision, coupled with the cautious economic outlook, weighed on market sentiment. Earlier gains in the Dow Jones Industrial Average faded, with the index turning negative.
The S&P 500 and Nasdaq Composite also extended their losses. Analysts suggest that the mixed market reaction reflects uncertainty over the Fed’s future policy path and its potential implications for inflation and growth.
As investors digest the Fed’s decision and commentary, all eyes will remain on upcoming data and the evolving macroeconomic environment, which could further influence the central bank’s cautious trajectory.
