Key points from Powell - August 22, 2025
1. Update of the monetary policy framework
The Fed abandoned the 'make-up' policy (average inflation targeting) adopted in 2020 and returned to flexible inflation targeting.
The wording about long-term low rates has been removed; now the strategy is designed for a wide range of economic conditions.
2. Balance of mandates: inflation vs employment
Inflation has decreased compared to peak levels, but remains above the target level of 2%, especially under pressure from tariffs.
The labor market is in a 'strange equilibrium': a slowdown in demand and supply of labor. This increases the risk of rising unemployment.
3. Possible rate cut in September
Powell first opened the door for a rate cut at the September meeting but with a caveat: the decision will depend on inflation and employment data.
Traders instantly increased the likelihood of such a step: to 75–90%.
4. Market and currency reaction
After the speech, stock markets actively rose: the S&P 500 added over 1.5%, Nasdaq and Dow also went up.
The dollar weakened by almost 0.8%, markets are pricing in a high chance of a rate cut in September.
5. Emphasis on the independence of the Fed
Powell made it clear: decisions will be made based on economic data, not political pressure.
What to expect next
September meeting is crucial
If employment and inflation data meet expectations, the rate may be cut by 25 bps.
Markets are adjusting to expectations
The weakening of the dollar and rising stocks currently support positivity.
Risks are stored
The effect of tariffs and possible deterioration in the labor market may hinder a rate cut.
The Fed has become more flexible
The new approach provides more freedom to respond to unexpected changes in the economy.
