FED Monetary Policy

[Aron]

I=7
Fed kept interest rate rates unchanged, flags slowing economic activity

• FED kept its key interest rate unchanged in the range of 4.25% to 4.50%, as was widely expected by the market.
• Michelle W. Bowman and Christopher J. Waller voted in favor of lowering interest rates, the first time since 1993 that multiple governors dissented.
• The committee revised its view on economic activity, now stating that “growth of economic activity moderated in the first half of the year,” a shift from the June statement which said the economy “continued to expand at a solid pace.”
• The post-meeting statement also noted that uncertainty about economic conditions “remains elevated,” a more cautious tone compared to June, when the committee said uncertainty had "diminished but remains elevated.’”

monetary20250730a1.pdf

[Aron]

Powell said no decision on September, will wait to see tariff impact on inflation

• Powell didn’t rule out September rate cut, but emphasized it depends entirely on incoming data.

  “We have made no decisions about September. We don’t do that in advance. We’ll be taking that information into consideration… as we make our decision at the September meeting.”

• He said the policy is seen as modestly restrictive.

  “It seems to me and to almost the whole committee that the economy is not performing as though restrictive policy were holding it back inappropriately… modestly restrictive policy seems appropriate.”

• Powell acknowledged that tariffs are contributing to goods inflation, but the Fed is currently treating this as a one-time price level adjustment rather than persistent inflation.

  “It’s starting to show up in consumer prices… Companies feel that they have every intention of putting this through to the consumer, but… they may not be able to.”

  “A reasonable base case is that these are one-time price effects… We will make sure that this does not move from being a one-time price increase to serious inflation.”

• He said they are well positioned to wait and learn about the tariff impact before adjusting the policy stance.

  “For the time being, we’re well positioned to learn more about the likely course of the economy and the evolving balance of risks before adjusting our policy stance.”

• Powell strongly defended fed independence.

  “Having an independent central bank has served the public well… There would be a great temptation… to use interest rates to affect elections. And that’s something we don’t want to do.”

• Powell said the two dissenters gave good arguments.

  “Two of our members felt that the time had come to cut… well-argued, very thoughtfully argued… it’s an unusual situation where you have risks to both your employment mandate and your inflation mandate.”

GPT 4o Summary (Notion)

[Aron]

I=7
Federal Reserve Governor Adriana Kugler, part of those that sets interest rate, resigns, giving Trump opportunity to fill her role early

• Federal Reserve Governor Adriana Kugler whose term was set to expire at the end of January 2026, submitted her resignation as fed governor without stating any reason, giving President Trump an opportunity to nominate her successor early.
• Kugler was absent during Wednesday’s fed voting but was considered hawkish, expressing support for holding rates until the impact of the tariffs become clear.
• Treasury Secretary Scott Bessent had indicated that the administration might appoint someone to fill her position and then later elevate that person to the fed chair.
• In other news, Trump fired head of Bureau of Labor and Statistics, saying she manipulated jobs data before the elections.

[Aron]

I=7

Trump fired federal reserve board governor Lisa Cook for allegedly committing mortgage fraud

• President Trump announced yesterday that he fired Fed Governor Lisa Cook from the Federal Reserve’s Board of Governors following allegations of mortgage fraud.
• Cook’s removal is likely to be contested in a federal court and even the Supreme Court.
• If Trump is successful in removing Cook and her replacement and that of Kugler are confirmed by Senate, he would have a 4-to-3 majority of appointees on the board.
• Cook’s firing represents a significant escalation of Trump’s battle against the fed, which he blames for taking too long to lower interest rates.
• Powell said last week at Jackson Hole that conditions may warrant interest rate cuts as they proceed carefully.

[Aron]

I=8
Fed predicts one rate cut in 2026, lower than three expected by the market

• Fed lowers interest rates by 25 basis points to a range of 4.0% to 4.25% as was widely expected by the market.

  “Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated,” the post-meeting statement reads

• Fed’s “dot plot” of individual expectations indicated two more cuts this year and only one cut in 2026, significantly below market expectations for three cuts next year.

• Newly appointed fed governor Stephen Miran voted for 0.5% cut while the rest of the members voted for 0.25% move.

• S&P 500 futures fell 0.2% while Nasdaq Composite shed 0.6% following the report.

  

  Fed Press release
  Summary of Economic Projections

Assessment

Beyond the data, I expect political pressure and Powell’s term ending in May 2026 to result in more than one cut in 2026.

[Aron]

Powell called today’s move a “risk management cut” and added that tariff pass-through is currently smaller and slower

Powell said today’s move was a “risk management cut”.

“Policy is not on a preset course.” “I think you could think of this in a way as a risk-management cut…”

He said the tariff pass-through to consumers is smaller so far, adding that a reasonable base case is that the effect on inflation will be short-lived.

“A reasonable base case is that the effects on inflation will be relatively short-lived, a one-time shift in the price level.”

”The pass through has been slower and smaller than we thought.”

He pointed out that labor risks are skewed to the downside.

“The overall job finding rate is very very low… that could very quickly flow into higher unemployment… we don’t need it to soften anymore. Don’t want it to.”

He said they continue to reduce their securities holdings and don’t expect any macroeconomic effects from it.

“We’re cutting the size of our balance sheet quite marginally… we don’t think that has at all significant macroeconomic effects.”

GPT 5 Summary (Notion)

Powell’s Remarks

[Aron]

I=5
Powell said stocks are fairly valued and reiterated their interest rate stance is still modestly restrictive

Powell described the fed’s interest stance as “still modestly restrictive” (min 4:34).

”Two-sided risks mean that there is no risk-free path, “ he said at a talk in Providence, R.I. If we ease too aggressively, we could leave the inflation job unfinished and need to reverse course later to fully restore 2% inflation. If we m maintain restrictive policy too long, the labor market could soften unnecessarily. When our goals are in tension like this, our framework has long called for us to balance both sides of our dual mandate.”.

He said stocks are fairly valued (min 13:31).

“But you’re right, by many measures, for example, equity prices are fairly highly valued.”

LIVE: Federal Reserve Chair Jerome Powell speaks on economic outlook

[Aron]

I=5
Fed cuts interest rates by 25 basis points as was widely expected by the market

• Fed lowers interest rates by 25 basis points to a range of 3.75% to 4.00% as was widely expected by the market

• It said it will end quantitative tightening on December 1.

• The post statement said inflation remains somewhat elevated but economy continues to expand at a moderate pace.

  “Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.”

• Governor Stephen Miran once again dissented, preferring a half-point cut.

• Stock futures maintained positive gains following the report, with Nasdaq Composite and S&P 500 up 0.5% and 0.2%, respectively.

Federal Reserve issues FOMC statement

[Aron]

I=6
Market now price in a 52% chance of a rate cut next month, down from 95.5% as investors speculate that lack of economic data might make the fed less inclined to cut rates

• Market expectations of fed interest cut in December have been declining, driven by comments from White House press secretary Karoline Leavitt who suggested that economic data that was due out during the government shutdown might never be released.
• Some investors think the lack of these data might make the fed less inclined to cut rates.
• Traders are now pricing in a nearly 52% chance of a rate cut next month, down from 62.9% a day ago and 95.5% chance a month ago.

Markets no longer view the December rate cut as a sure bet, with Fed...

[Aron]

I=7
Stock futures gained more than 1.6% following dovish comments from New York Fed President

• New York Fed President John Williams sees room for further rate cut in December as labor market weakness poses greater risk than inflation

  “I view monetary policy as being modestly restrictive, although somewhat less so than before our recent actions,” he said in remarks for a speech in Santiago, Chile. “Therefore, I still see room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral, thereby maintaining the balance between the achievement of our two goals.

• Following his comments, the market now sees a 72% probability of a rate cut in December, a significant upgrade from yesterday (30%-40%).

• S&P 500 futures and Nasdaq Composite futures also gained more than 1.6% following his comments.

• On the other hand, Boston Fed President Susan Collins and Dallas Fed President Lorie Logan struck a hawkish tone today.

  “I do think mildly restrictive policy is very appropriate right now. And, you know, and that makes me hesitant as I look forward to think about what the next policy moves should be,” Susan Colins said last week.

  “With two rate cuts now in place, I’d find it difficult to cut rates again in December unless there is clear evidence that inflation will fall faster than expected or that the labor market will cool more rapidly,” Logan said.

• Williams’ remarks are particularly influential because he serves as FOMC vice chair and is part of the Fed’s informal ‘troika’ of top decision-makers alongside Chair Jerome Powell and Vice Chair Philip Jefferson.

New York Fed President Williams sees room for 'further adjustment' to rates

[Aron]

December 10, 2025 FED Meeting: The market has 89.9% probability that the fed will cut interest rate by 25 bps today to a range of 3.5%-3.75%

• The market expects multiple cuts in 2026, deviating from Fed’s earlier “dot plot” which indicated one rate cut.
• The meeting also comes amidst rising dissents in the Fed, with analysts pointing that multiple dissents could be bearish for the market.

[Aron]

I=8
Fed lowers interest rate by 25 bps to a range of 3.5%-3.75% as was widely expected by the market but signals future cuts are no guarantee

• There were three dissents, the first time in six years.

• There was a return in the post-meeting statement from a year ago, which had signaled the Fed was done cutting for the time being.

  “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” the statement said.

• The “dot plot” expectations remained unchanged from September, signaling one rate cut in 2026 and 2027.

• The fed raised its GDP projections for 2026 to 2.3% from 1.8%.

• It said it will purchase $40 billion of of Treasury bills per month starting Dec. 12 as it’s looking to rebuild reserves used while tightening the balance sheet.

  

Federal Reserve issues FOMC statement

[Aron]

Fed on a wait and see mode, Powell said

• In the post-meeting interview, Powell said there were four other soft dissents but downplays it as natural.

  “Today’s decision was clearly very divided… not just the two official dissents… but there were also soft dissents from four others…”

  “Everyone around the table… agrees that inflation is too high and that we want it to come down and agrees that the labor market has softened and that there’s further risk. Where the difference is, is how do you weight those risks and what does your forecast look like… It’s very unusual to have persistent tension between the two parts of the mandate and when you do this is what you see.”

• He pointed out that they are well positioned to wait and see how the economy will evolve from here.

  “We’ve now cut a total of 175 basis points… and we feel like where we’re positioned now… we’re well positioned to wait and see how the economy evolves from here.”

• He said the data that we get may be distorted.

  “The data we get… may be distorted… because data was not collected in October and half of November… we’re going to look at that really carefully and with a somewhat skeptical eye.”

• Powell pointed out that consumer spending remains solid.

  “Consumer spending appears to have remained solid and business fixed investment has continued to expand… In our SEP, the median participant projects that real GDP will rise 1.7% this year and 2.3% next year… Fiscal policy is going to be supportive and AI spending on data centers and related to AI has been holding up business investment. The consumer continues to spend. So it looks like the baseline would be solid growth next year.”

• Labor market is softening, with Powell hinting job growth may already be negative.

  “Payroll jobs averaging **40,000 per month since April. We think there’s an overstatement… by about 60,000. So that would be negative 20,000 per month.”

  “Labor supply has also come down quite sharply… a world where job creation is negative… we need to watch that situation very carefully and be in a position where we’re not pushing down on job creation with our policy.”

• He said tariffs is a one-time price-level shock, not a new inflation regime but with clear risk.

  “A reasonable base case is that the effects of tariffs on inflation will be relatively short-lived, effectively a one-time shift in the price level. Our obligation is to make sure that a one-time increase in the price level does not become an ongoing inflation problem.”

  “If there are no new tariff announcements… inflation from goods should peak in the first quarter or so of next year… and you should start to see that coming down in the back half of next year.”

  “We just came off an experience where inflation turned out to be much more persistent than anyone had expected. Is that going to happen now? That’s the risk.”

GPT 5.1 Summary (Notion)

[Aron]

I=8
Stock futures fall more than 0.5% after DOJ opened criminal investigation into fed chair Jerome Powell

• Powell said the investigation is another attempt by President Trump to influence the rate policy, adding that he will not bow to the pressure.

  “This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions, or whether instead, monetary policy will be directed by political pressure or intimidation,” said Powell in the statement.

• The investigation relates to Powell’s Senate Banking Committee testimony on the renovation of Fed office buildings.

S&P 500, Dow climb to closing records as traders look past Fed independence...

[Aron]

I=8
Fed kept interest rate rates unchanged as was expected but offers little clarity on the next rate cut

• Fed voted to keep key interest rate in the range of 3.5% to 3.75%, as was widely expected by the market .

• The committee eased its concerns of the labor market but said inflation remains somewhat elevated.

  “Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has shown some signs of stabilization,” the post-meeting statement said. “Inflation remains somewhat elevated.”

• The committee offered little clarity on when they will resume the rate cuts, with markets not expecting another rate cut until June.

• Governors Stephen Miran and Christopher Waller voted against the hold, both favoring 25 basis points cut.

• S&P 500 and Nasdaq Composite futures were little change following the release of fed meeting post-statement.

• The CNBC screenshot below shows what has changed from the December post-statement.

  

Federal Reserve issues FOMC statement

[Aron]

I=7
President Trump nominates Kevin Warsh as the next fed president

• Trump praised him as “central casting”.

  “I have known Kevin for a long period of time, and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best,” said Trump in a Truth Social post announcing the selection. On top of everything else, he is “central casting,” and he will never let you down."

• Warsh has been one of the current fed’s critics, calling for a regime change last year July.

  “The credibility deficit lies with the incumbents that are at the Fed, in my view,” he said during the July interview.

• Markets currently don’t expect much from him, predicting only two more cuts this year.

• His powers could be reduced by Powell staying on the board after his term as fed chair ends (to defend the fed’s independence) and the Supreme Court’s decision on the removal of Governor Lisa Cook.

• The Supreme Court already appears skeptical of Trump’s decision to remove Governor Cook.

[Aron]

I think Kevin Warsh’s nomination could pass the Senate, as his past support for higher interest rates could make him acceptable to some Democrats. The only problem is that the nomination could be delayed by the DOJ’s investigation into Powell’s conduct in fed building’s renovation.

Sen. Thom Tillis (R-North Carolina) vowed today to oppose any nomination for Powell’s successor until the investigation is resolved.

Tillis holds an effective veto on the Senate Banking Committee, where Republicans have a narrow edge. However, a number of Republican banking committee members such as its chairman Tim Scott, Bernie Moreno, Lummis, Britt, and McCormick have applauded the appointment of Warsh.

Democratic Sen. Elizabeth Warren of Massachusetts, the highest-ranking Democrat on the committee, seemed to praise Warsh but pointed out that no one should move forward with his nomination until Powell’s investigation is dropped. Some other Democrats in the committee such as Kim and Warner echoed Warren’s statement on Powell’s investigation.

I will point out that only a simple majority is required to pass the nomination in the Banking Committee and that Powell’s term ends on May 15, hence the delay in approving his nomination may be non-issue.

Democrat economist Jason Furman pointed out that Warsh is qualified, but his confirmation should only proceed if Trump backs off actions that undermine Fed independence.

Subitha Subramaniam, head of investment strategy at Sarasin & Partners said Kevin Warsh is incredible but whether he can navigate political pressure remains the question. She added that Warsh believes fed should have a much smaller balance sheet and may use his view (not backed by data) that AI will reduce costs to lower interest rates: https://www.youtube.com/watch?v=EKNcwTCPnRc

Danielle DiMartino Booth, CEO and Chief Strategist at QI Research hopes that Warsh will follow through with his promise to reduce the fed balance sheet and added that Tilis is right to demand for lawsuits to be dropped: https://www.youtube.com/watch?v=mTtt-XHGneA

Mark Cudmore, Microstrategist for Bloomberg thinks Warsh will cut rates as long as the data allows since he has a track record for caring for inflation and has a long career ahead of him (min 0:00): https://www.youtube.com/watch?v=pEykSlALHdw

[Aron]

Warsh confirmation timeline hinges on Powell probe, 60% odds of resolution

• In the absence of drama, Warsh’s confirmation could take few days. For instance, Powell’s first term confirmation took less than 20 days while his second-term confirmation took around 4 months. Similarly, Yellen’s 2013 confirmation took around 3 months.
• Based on past nominations (e.g. that of Powell and Yellen), President Trump already delayed by at least one month in nominating Warsh.
• More than half a half-dozen Republicans recently came out to criticize the investigation into Powell.
• Republican party currently makes up 53 while Democrat make up 45 and Independent make up 2 positions in the US Senate, and a simple majority is needed to confirm Warsh’s nomination.
• If Warsh is not confirmed by May 15 (when Powell’s term will come to an end), Fed Vice Chair Philip Jefferson, who is currently against further rate cuts unless data supports it, will take over in an acting capacity.
• Trump said on Friday that he was open to waiting for Warsh’s confirmation until Tillis, who is not seeking reelection this year, left the Senate and called him an “obstructionist.”

Assessment
Based on all those findings, if Trump doesn’t ask the DOJ to end the investigation into Powell, I think Warsh’s confirmation could be delayed by at least two months (probability:70%).

Given Trump’s strong desire for rate cuts and the fact that the current Vice Chair is currently hawkish, I think the probability that he calls for an end to Powell’s investigation is high (probably 60%).

As pointed above, his past support for higher interest rates could make him acceptable to some Democrats. Therefore, I would put the probability of becoming the next Fed chair at over 95%.

[Aron]

I=6
Senate Banking committee chair Tim Scott doesn’t believe Powell committed any crime, thinks standoff on Kevin Warsh’s nomination will end soon

• This comes after all 11 Democrats on the Senate Banking Committee demanded yesterday that Kevin Warsh’s confirmation be delayed until the Powell probe concludes.

  “I do not believe that he committed a crime during the hearing,” Scott said in an interview with Fox Business’s Maria Bartiromo on Wednesday. "I believe that we are going to resolve that issue. We’re going to move forward,” Scott added.

• An end to Powell’s probe will accelerate Warsh’s confirmation given Rep. Tilis already vowed to delay confirmation until the probe ends, taking the likely Banking Committee vote to 12:12.

https://www.wsj.com/economy/central-banking/top-republican-senator-says-feds-powell-didnt-commit-a-crime-b7a48453?mod=economy_lead_pos2