Powell Resists Pressure Amid Internal Fed Tensions

The Federal Reserve has made its decision, but without certainty. According to Jerome Powell, no adjustment of interest rates will be without consequence. While several central banks have started a cycle of cuts, the Fed chairman warns of a strategic deadlock. In a context where inflation resists and employment wavers, every decision becomes risky. A strong signal sent to the markets that scrutinize every word from the Fed as a decisive monetary turning point approaches.

A divided Fed facing an insoluble equation

While the Fed has reduced its key interest rates , Jerome Powell revealed the growing dilemma facing the Federal Reserve during a speech held Tuesday in Rhode Island. “There is no risk-free path”, he stated , reminding that the central bank must juggle two fundamental goals : price stability and full employment.

This stance comes in a context where the Fed decided last week to cut its key interest rate by 25 basis points, a decision that marks a turning point but solves nothing. Powell specified that “bilateral risks” make every action potentially perilous, both for the real economy and the markets.

Tensions are not only economic, they are also internal to the Fed. The last committee meeting revealed strong disagreements :

• Stephen Miran, new governor and the sole dissenter in the vote, pleaded for a 50 basis point cut, believing current rates are too restrictive ;

• He believes that rates should be 2 points lower than their current level of 4 % to 4.25 %, arguing their maintenance could accelerate job losses ;

• Miran is currently on leave from his White House duties, adding a political dimension to his stance ;

• Powell, on his side, tries to preserve balance within the FOMC, maintaining a median line between caution and action.

This fracture within the Fed reflects the extent of uncertainty currently dominating US monetary policy. While some members advocate rapid action to support the labor market, others fear that a too-rapid easing could reignite inflationary pressures.

Between political pressures and inflation caution

Beyond internal disagreements, the Fed also has to contend with increasingly explicit external pressures. President Trump, although absent from official debates, does not spare his criticisms towards Jerome Powell, whom he accuses of being “too slow” in cutting rates.

During his speech in Rhode Island, Powell refrained from directly responding to these attacks, but the political climate weighs on the perceived independence of the central bank. Meanwhile, several voices within the Fed call for more restraint.

This is notably the case of the president of the Atlanta Fed, Raphael Bostic, who stated that he would “be reluctant to support a new cut in October” due to persistent inflationary pressures.

The president of the St. Louis Fed, Alberto Musalem, meanwhile supported the last cut while calling it a “precautionary” measure, intended to limit the risks of labor market degradation.

However, he also expressed reservations about the opportunity for further monetary easing. To date, inflation as measured by the PCE index, the metric favored by the Fed, stands at 2.9%, well above the 2% target. A new figure is expected Friday. This uncertain context fuels debates but also hesitations regarding the direction the Fed will take in the coming months.

In this context of monetary uncertainty, bitcoin takes on an alternative barometer role. A decentralized asset by essence, it attracts investors’ attention at every sign of weakness in fiat currencies or hesitation by central banks. While the Fed’s caution feeds volatility in traditional markets, it also strengthens the appeal of an asset perceived by some as a hedge against the failings of monetary policies.

In the short term, this indecision could translate into increased volatility in the markets, including the crypto ecosystem. An overly cautious monetary policy could feed recession fears, while too rapid easing could derail the disinflation process. For investors, interpreting the monetary calendar promises to be more complex than ever, especially as geopolitical tensions like Trump’s trade war are bound to enter the equation.