Fed Chair Jerome Powell Signals Rate Shift—What It Means for Markets and Your Wallet

Investors on edge as Powell signals patience on rates while balance-sheet runoff nears its end Washington—Federal Reserve Chair Jerome Powell warned Tuesday that the U.S. economy still sits “in a delicate balance” between stubborn inflation and a cooling labor market, reinforcing expectations that policymakers will keep interest rates elevated into early 2026 even as they consider slowing the pace of quantitative tightening. Key takeaways from Powell’s latest remarks • No rush to cut: Speaking before the National Association for Business Economics, Powell said moving “too quickly” on rate cuts risks reigniting price pressures that have only recently eased. • Balance-sheet runoff could conclude “relatively soon”: He hinted the Fed is nearing the end of its $95 billion-per-month reduction in Treasury and MBS holdings, a step that would stabilize liquidity without changing short-term rates. • Dual-mandate tension: Powell emphasized “there is no risk-free path” as officials weigh lingering inflation, still running near 2.9 percent, against the softest hiring pace since 2020. Why it matters for markets The chair’s comments cement traders’ view that the Fed will stand pat at its November and December meetings, keeping the federal-funds rate in a 5.25 %–5.50 % range. Futures pricing shows the first full 25-basis-point cut now pushed out to the March 18, 2026 meeting, according to CME’s FedWatch tool. Yields on two-year Treasuries briefly touched a three-week high near 4.87 % after Powell spoke, while the S&P 500 erased earlier gains, underscoring Wall Street’s sensitivity to any hint of a policy pivot. Labor market flashes yellow Powell acknowledged that job creation has slowed to an average of just 78,000 per month in Q3, far below last year’s 225,000 pace. Although layoffs remain limited, he said “persistent softness could weaken household spending and broader growth,” implying that an eventual easing cycle is contingent on further evidence that inflation is on a clear path to 2 percent. Political cross-winds The speech lands three weeks before the Fed’s semiannual testimony on Capitol Hill, where lawmakers from both parties are expected to press Powell on housing affordability, elevated credit-card rates, and the central bank’s planned digital-currency pilot. With the 2026 election season approaching, Powell reiterated the Fed’s independence, stating that policy decisions will “remain data-dependent and insulated from short-term political considerations.” What to watch next • Core PCE inflation report (Oct 31): A downside surprise could revive bets on an earlier cut. • November FOMC meeting (Nov 6): Updated projections may reveal whether more officials still see another hike as “possible but not baseline.” • Treasury refunding announcement (Nov 4): Any shift in issuance toward shorter maturities could ease upward pressure on long-term yields, complementing the Fed’s eventual halt to balance-sheet runoff. Bottom line Jerome Powell’s latest message to markets is clear: the fight against inflation is not over, and rate relief will only come once the Fed is convinced price stability has been secured. Until then, investors should brace for a higher-for-longer stance even as the central bank fine-tunes other tools to support financial-market functioning.