Fed Cuts Interest Rates, But Inflation Remains Elephant In The Room

The Fed's widely anticipated 25 basis point rate cut on Thursday left investors with a sense of relief – but not certainty. According to JPMorgan analyst Maia G Crook. While Federal Reserve Chair Jerome Powell acknowledged the U.S. economy's resilience, inflation remains a nagging issue.

In the post-meeting press conference, Powell highlighted key growth drivers, including robust consumer spending and a solid labor market.

However, he attributed persistent inflation, or the “elephant in the conference room,” largely to lagging pressures, such as shelter and insurance costs, underscoring that the fight against rising prices is far from over.

She notes that while Powell signaled some progress, he avoided providing a clear path forward, emphasizing the Fed's "data-dependent" approach.

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What's Next For December?

Crook expects another 25 basis point cut in December, followed by quarterly cuts in 2025, but warns the Fed might hold off if the inflation rate doesn't continue to ease. With Powell leaving options open, she suggests the Fed's caution reflects a genuine concern over stubborn inflation that could delay the easing path investors hope for.

ETFs such as the SPDR S&P 500 ETF Trust (NYSE:SPY), the iShares Core S&P 500 ETF (NYSE:IVV) and the Vanguard S&P 500 ETF (NYSE:VOO) provide exposure to broad market U.S. equities.

Politics In The Background

When asked about the impact of the recent election, Powell stressed that policy decisions will remain apolitical, emphasizing that he would not step down if asked and can't legally be removed from his position. Crook notes that Powell's clarification here reaffirms the Fed's independence, reassuring markets wary of potential political pressures.

She sees the Fed as ready for a December cut, but with inflation still looming large, investors should remain cautious. As Powell sidesteps firm guidance, the Fed's data-driven approach means a slower path is on the table if inflation remains stubborn.

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Image created using artificial intelligence via Midjourney.

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