Powell's Key Takeaways: The Federal Reserve Chose a Risk Management Path

At the meeting, the U.S. Federal Reserve lowered interest rates by a quarter of a percentage point. Powell’s speech afterward showed that the situation is much more complex than it may seem at first glance. This is not a “dovish speech” about active easing of monetary policy. On the contrary, the Fed chair clearly indicated that further rate cuts in December are not a predetermined scenario but just one of several options.

Amid these news, Bitcoin experienced a sharp decline, dropping below $110,000 (the correction low was $109,200). However, the market quickly recovered: currently, BTC is trading closer to $111,000. This price jump reflects market volatility in response to ambiguous signals from monetary policy.

Monetary Policy in Uncertain Conditions: What Powell Said

The key point of Powell’s speech was his honest assessment of the diverse opinions within the Fed. The meeting included “strongly differing views” on future actions. This indicates that there is no consensus among Federal Reserve members regarding the next steps in monetary policy.

The main clarification: the decision to cut rates by a quarter of a percentage point was made by a majority vote, but sharp disagreements centered on future actions. Powell emphasized that today’s cut was a risk management measure. This means the Fed is not moving toward systematic and prolonged easing of credit conditions.

Inflation Remains a Focus

According to the Fed chair, inflation still remains elevated, although signs of slowdown are emerging. The Consumer Price Index was slightly below forecasts, allowing the Fed to take the first step toward rate reduction.

However, positive trends are met with caution. Powell noted that the overall PCE (Personal Consumption Expenditures) index and core PCE increased by 2.8%. This remains above the 2% target. On the positive side, disinflation continues in the services sector, and most measures of long-term inflation expectations align with the target.

Special attention was given to the impact of tariffs on price processes. Powell acknowledged that tariff increases lead to higher prices for some goods. However, the baseline scenario assumes this effect will be short-term. The Fed considers it their duty to ensure that tariff impacts do not become a persistent problem for price stability.

Labor Market Slowing Down

Powell’s speech included important signals about the state of the labor market. Demand for labor has clearly decreased — this was noted as a key change. The unemployment and hiring rates remain low, though showing signs of slowing.

Powell emphasized that the labor market is not experiencing a rapid decline, but the dynamics are changing. The absence of growth in unemployment benefit claims indicates a gradual, not abrupt, slowdown. The decline in job openings also suggests a gradual adjustment, instilling “some confidence” in the manageability of this process.

State-level unemployment claims data indicate the situation remains stable, though the trend points to weakening labor demand.

December Is Not a Foregone Conclusion: Powell’s Clear Position

One of the most important points in Powell’s speech was his direct statement that a rate cut in December is not certain. This formulation caused a significant market reaction, as it dispelled expectations of systematic easing of monetary conditions.

The Fed chair made this as clear as possible: “Further reduction in December is not a given. We have not made a decision about December.” This means the decision will depend on new data on inflation and the labor market. The risk balance has shifted, and there is no “risk-free path” for policy. The Fed cannot use a single tool to address both employment issues and inflation risks simultaneously.

Reserve Balance: A New Phase After December

Powell’s speech also included technical details about the Fed’s balance sheet strategy. In December, the next phase of the balance sheet cycle will begin, which will be stable for a certain period.

He highlighted a critical point: at some point, the Fed will start replenishing its reserves again. Although the final parameters of this process are not yet determined, there is a clear assessment that current reserves slightly exceed the adequate level. The system aims to transition to a shorter balance sheet cycle, but the endpoint of this transition remains under discussion.

Reserves will continue to decline as other balance sheet obligations grow.

Market Reaction: Volatility and Uncertainty

Powell’s remarks triggered an immediate reaction in the cryptocurrency markets. Bitcoin exhibited the classic “sell the news” pattern — selling off on news of a less dovish Fed stance than expected. Falling below $110,000 reflected disappointment among some investors regarding prospects for active easing.

However, the quick recovery to around $111,000 showed that the market is overestimating the consequences. Investors understand that even with a more cautious approach, the Fed remains on a trajectory of rate cuts, albeit less aggressive than previously thought.

Key takeaway: future Federal Reserve decisions will depend on incoming data. If signs of stabilization or strengthening in the labor market appear, it will significantly influence rate decision-making. This creates high market uncertainty until the next meeting, when Powell’s speech will be reassessed based on new economic data.