The Fed's Quarter-Point Theater: Jerome Powell's Reluctant Pivot

September 21, 2025

So here we are. After nine months of theatrical hand-wringing and "data-dependent" posturing, Jerome Powell finally delivered his quarter-point mercy cut this past Wednesday. The federal funds rate now sits at a princely 4-4.25%, down from the suffocating 4.5% that apparently was crushing the American worker into submission.

Let me paint you the picture of this farce. For the better part of this year, Powell's Fed sat on their hands while unemployment data started flashing yellow warning signs. They waited. And waited. Then waited some more, ostensibly to "assess the impacts of tariffs on the economy." Meanwhile, Trump's social media tantrums grew louder by the week, culminating in Monday's all-caps demand that the FOMC "MUST CUT INTEREST RATES, NOW, AND BIGGER THAN [Powell] HAD IN MIND."

The markets, naturally, yawned. The S&P 500 managed a tepid 0.49% gain on Thursday, reaching 6,664 points. Record highs, sure, but the kind of muted euphoria that screams "already priced in." Small caps got a slightly bigger sugar rush—they're more sensitive to rate cuts, or so the textbook tells us—but even that felt perfunctory.

Powell's justification was classic Fed-speak wrapped in concern-trolling. He called it a "risk-management cut," as if 25 basis points could manage anything more substantial than a rounding error in corporate borrowing costs. "What's different now is that you see a very different picture of the risks to the labor market," he intoned during Wednesday's press conference. Translation: We finally noticed the unemployment rate exists.

The truly maddening part? The Fed's own dot plot suggests only two more cuts through the end of 2025, with just one measly reduction penciled in for 2026. Wall Street had been pricing in five cuts over the rest of this year and next. The bond market's response was swift and predictable—yields nudged higher as rate cut dreams got trampled by reality.

But here's what really sticks in my craw. This entire episode perfectly encapsulates the Fed's fundamental contradiction in the Trump 2.0 era. They desperately want to appear independent while simultaneously trying to thread the needle of political pressure and economic data that's been screaming for easier policy for months. The result? A policy stance that satisfies absolutely no one.

The labor market data has been deteriorating since early summer. Job openings have been sliding, and anyone paying attention to the weekly unemployment claims could see the writing on the wall. Yet Powell insisted on Wednesday that "I think we were right to wait" until now—a barely concealed middle finger to White House critics who've been calling the Fed "too late" to act.

Meanwhile, across the pond, the Bank of England held their policy rate steady at 4% but announced they're slowing their balance sheet reduction from £100 billion to £70 billion annually. Even the traditionally hawkish BoE recognizes that monetary conditions are getting uncomfortably tight. But not our Fed—they're still playing catch-up to economic reality while pretending this quarter-point adjustment represents some kind of measured, data-driven wisdom.

The truly cynical read here is that Powell waited just long enough to avoid looking completely capitulatory to Trump's demands, while cutting just enough to claim they're being "proactive" about labor market risks. It's policy-making by committee designed to offend the minimum number of people, which is exactly how you end up with maximum ineffectiveness.

The fact that Powell characterized this move as putting policy in a "more neutral" position rather than "moderately restrictive" tells you everything about the Fed's current mindset. They're desperately trying to rebrand monetary policy without actually doing the heavy lifting required to meaningfully support an economy that's showing clear signs of deceleration.

Markets may have hit record highs this week, but don't mistake that for validation of Fed policy. This rally is running on momentum and the promise of future cuts that, based on the latest projections, may never materialize at the scale needed. When the next batch of employment data inevitably disappoints, we'll get to watch this same dance play out again—Powell wringing his hands about labor market risks while delivering homeopathic doses of monetary stimulus.

The Fed's quarter-point cut this week wasn't monetary policy. It was political theater with a 25 basis point prop. And like most theater, it was more concerned with appearances than substance.

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What did you make of Powell's "risk management" framing? Hit reply and let me know if you think the Fed's finally behind the curve or just being appropriately cautious.