Powell Declares Rate Hikes Off the Table as Fed Confirms End of Tightening Cycle

TLDR:

• Powell explicitly stated “a rate hike is not anyone’s base case” marking the definitive end of tightening 
• Core PCE inflation runs slightly above 2% when tariff effects excluded, giving Fed room for future easing 
• FOMC vote was 10-2 with two members favoring cuts and zero pushing for hikes during latest policy meeting 
• Fed expects tariff-driven inflation to peak mid-2026 then decline, shifting focus to timing of rate cuts

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The Federal Reserve maintained interest rates at 3.5% to 3.75% during its latest meeting, with Chair Jerome Powell explicitly stating that rate hikes are no longer under consideration.

The FOMC vote resulted in a 10-2 decision, where two members favored cuts while none pushed for increases. Powell’s statement that “a rate hike is not anyone’s base case” marks a clear shift in monetary policy direction.

The central bank now focuses on determining the appropriate timing for potential rate cuts rather than further tightening.

Fed Pivots From Tightening to Wait-and-See Approach

Powell emphasized that inflation remains elevated but attributed most excess price pressures to tariffs rather than underlying demand.

According to the Fed chair, “core PCE excluding tariff effects is running only slightly above 2%” target. The central bank expects tariff-driven inflation to peak by mid-2026 before declining later this year. This trajectory could provide the Fed with room to ease policy conditions.The economy continues to demonstrate resilience beyond Fed expectations. Powell noted that “the economy has once again surprised with its strength” while unemployment data shows signs of stabilization.

The Fed chair stated that “current policy is already restrictive enough” to address inflation concerns. The central bank believes its existing stance adequately manages price pressures without requiring additional tightening measures.

Future policy decisions will proceed on a meeting-by-meeting basis. Powell confirmed that “no decisions have been made about future cuts” while emphasizing hikes are no longer realistic.

According to a post from Bull Theory, Powell’s remarks confirmed that “tightening is finished” and the question has shifted to “how long do we hold before we cut.”

The Fed chair addressed several topics beyond monetary policy. He stated “the Fed does not comment on the dollar” and mentioned limited evidence of aggressive foreign investor hedging.

On fiscal matters, Powell called “the U.S. budget deficit unsustainable” and urged prompt action. This comment contributed to gold reaching new highs as investors sought alternative assets.

Policy Outlook Suggests Eventual Easing

Powell maintained that “the Fed has not lost independence” despite political pressures. He expressed confidence that the central bank “will continue making decisions objectively” going forward.

The chair characterized tariffs as “likely a one-time price increase” rather than persistent inflation. Powell stated “most inflation overruns are coming from tariffs, not demand” which suggests conditions may improve.

The Fed chair suggested “policy may now be loosely neutral or somewhat restrictive” given recent adjustments. He acknowledged “the Fed has already moved a good way on rates” from previous levels.

Powell emphasized that “no one expects the next move to be a hike” among committee members. The direction clearly points toward potential easing rather than further restriction.

Powell dismissed concerns about the recent government shutdown. He expects “any effects from the shutdown should be reversed this quarter” as economic activity normalizes.

The Fed views the shutdown as a temporary disruption rather than a structural economic risk. This assessment reinforces the central bank’s confidence in underlying economic stability.

Financial conditions are no longer being actively tightened. The system transitions from restriction toward stabilization as the Fed holds its position.

Markets now anticipate when the easing cycle will begin rather than if additional tightening will occur. The meeting delivered a definitive message that the tightening cycle has concluded.

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