The press conference for the Federal Open Market Committee (FOMC) was about as boring as it gets. The market did not expect rate cuts, the Fed obliged, and Chair Jerome Powell made it clear the Fed has not changed its core narrative about monetary policy. The economic uncertainty introduced by economic warfare through tariffs compels the Fed to pause as long as the economy in general remains in what Powell describes as a “solid position.” However, economic expectations took a turn for the worse with Powell cautioning “meaningful inflation is coming.” The stagflationary change in economic projections included a small increase in the unemployment rate with a notable deterioration in median expectations for economic growth and inflation. GDP growth expectations for 2025 dropped from 1.7% to 1.4% while 2026 expectations dropped from 1.8% to 1.6%. Core PCE (Personal Consumption Expenditures) inflation expectations jumped from 2.8% to 3.1% for 2025 and increased from 2.2% to 2.4% for 2026.
As before, Powell laid the blame for stagflationary impacts on tariffs: “increases in tariffs this year are likely to push up prices and weigh on economic activity.” In a likely reference to a Beige book full of tariff-driven warnings on inflation, Powell also observed the following:
“…we’re beginning to see some [tariff-driven inflationary] effects, and we do expect to see more of them over coming months. We do also see price increases in some of the relevant categories…that are attributable to tariff increases. In addition we look at surveys of businesses…many companies do expect to to put all or or some or all of the effective tariffs through to the next next person in the chain and ultimately to the consumer.”
These expectations for meaningful inflation keep the Fed sitting on its hands. The median expectation for the Federal Funds rate stayed the same for 2025 at 3.9% (the current range is 4.25 to 4.5%) but nudged higher for 2026 from 3.1% to 3.4%. Even 2027 nudged higher from 3.1% to 3.4%.
A Swipe at DOGE?
Powell’s implicit critique of Federal policies did not stop with economic policy this time around. In response to a question about the Federal Reserve’s plans to cut its workforce, Powell was curiously deliberate in explaining the “professional” way to rationalize a Federal workforce:
“This is something you do very carefully, thoughtfully, and you do it respecting that we have critical missions to carry out. I’ve had a lot of experience in my prior careers with headcount reductions and things like that, and this is how you do it professionally. You do it carefully, thoughtfully with a lot of planning, and you do it over a period of time.”
I took note of Powell’s commentary because the Department of Government Efficiency (DOGE) has made a name for itself with swift, sudden, and often deep cuts throughout the Federal government. Powell clearly plans to leave his Chairmanship swinging.
Muted Responses Include A Short-Term Bottom for the U.S. Dollar
While Powell was swinging, financial markets general yawned. The S&P 500 (SPY) did its typical post-Fed fade after erasing all of the morning’s gains. The net impact was a forgettable 0.03% loss on the day. The SPDR Gold Trust (GLD) fell 0.5% on the day as the U.S. dollar index (DXY) resumed its countertrend momentum since bottoming out at a fresh 3-year low and just below the April low. A major test is coming soon with resistance from the downtrending 50-day moving average (DMA) (the red line). I remain bearish on the U.S. dollar as long as that resistance holds.
Source: Tradingview.com
Be careful out there!
Full disclosure: long and short U.S. dollar currency pairs
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