Amidst the uproar, Asian stock markets saw a significant divergence, suggesting that the Federal Reserve's dovish stance had yet to become clear. Fed Chairman Jerome Powell delivered a speech at a press conference early Thursday morning. That same day, the Fed announced a 25 basis point interest rate cut. The meeting, with its many complex threads and subplots, was rich enough to warrant a multi-part miniseries, and its interpretations were far more divisive than expected!



To clarify the core market logic, the following are key takeaways from discussions and research reports by senior Fed watchers:

October rate cut becomes the “path of least resistance”, December action is in doubt

Kevin Burgett, an economist at LH Meyer/Monetary Policy Analytics, predicts that the Federal Reserve will implement another 25 basis point rate cut in October. He explicitly pointed out that the October rate cut is the "path of least resistance" because only one employment data will be released before the next meeting of the Federal Reserve's interest rate committee (October 28-29), which limits the data variables.

Burgett believes there's significantly greater uncertainty about whether the rate will continue to fall in December. By then, Fed officials will have more economic data to draw upon, providing a more robust basis for policy decisions. "The October rate cut doesn't mean the December policy direction is locked in," he added.

Current financial market pricing suggests a high probability of two further 25 basis point rate cuts this year. However, there is a significant divergence between the Federal Reserve and market expectations regarding the interest rate path through 2025: the Fed internally expects rates to remain around 3.4%, while the market has already priced in rates below 2%.

Jeffrey Rosenberg, chief fixed income strategist at Blackrock, analyzed that the core of this disagreement is that the market is betting in advance on the policy shift that may be implemented by Federal Reserve Chairman Powell's successor.

Officials agree: Tariff inflation is a "one-off shock" and there is no need to overreact

Powell clearly sent a signal at the press conference: market concerns about tariffs triggering an upward spiral of inflation are gradually easing.

“The likelihood of a sustained surge in inflation has diminished significantly,” Powell said.

Burgett further pointed out that judging from the economic forecasts released by the Federal Reserve, "all officials have reached a consensus" - there is no need to pay too much attention to the temporary inflation driven by tariffs, and policy making will be free from the interference of short-term price fluctuations.

"There's no clear factor that could reverse this perception," Burgett emphasized. Even with the labor market remaining tight, wage growth, a traditional driver of inflation, has been weak. This is directly related to the structural problem of limited labor supply caused by the White House's anti-immigration policies.

The Fed is rallying behind Powell, signaling a clear defense of its independence.

Before the meeting, most Fed watchers predicted a split with multiple officials voting against the rate cut. However, the final vote showed that only Stephen Miran, the chief economist of the Trump administration and a new member of the Fed, voted against the rate cut.

Padhraic Garvey, regional head of research at ING, wrote in a note to clients: "This vote was likely an active choice by the other members of the Fed's interest rate committee – both a signal of support for Chairman Powell and, more fundamentally, an indirect defense of the Fed's policy independence."

Neil Dutta, chief economist at Renaissance Macro Research, analyzed that the core reason why Federal Reserve Board members Christopher Waller and Michelle Bowman, who had previously pushed for a rate cut, chose not to vote against it was that "they focused on the current core goal" - pushing other officials to approve the policy framework of "three rate cuts this year" (including this rate cut).

Krisna Guha, vice chairman of Evercore ISI, said, "Despite the fact that there are a considerable number of officials within the Fed who oppose rate cuts, Powell has been able to gather majority support for his preferred policy path."

The market misinterpreted the "risk management-oriented rate cut". Is there a possibility that Powell's true intention has changed?

When Powell defined this rate cut as a "risk management rate cut," the financial market immediately showed negative feedback, generally interpreting it as a signal that "future rate cuts will be evaluated meeting by meeting and the pace will be uncertain."

However, Guha believes the market completely misinterpreted Powell's statement. In fact, the core meaning of a "risk-management rate cut" is that the Fed can proactively stabilize expectations without waiting for clear signs of economic weakness—a logic that is clearly positive for risky assets.

True, seven Fed officials currently support no further rate cuts this year. "But the core of the future policy debate will be the 12 officials who advocate for further rate cuts through 2025, not the seven who oppose them," Guha added.

Outlook and Key Points for the Federal Reserve's Interest Rate Decision

The non-farm payroll data before the October meeting directly affects the pace of interest rate cuts; at the same time, the impact of this data on the Federal Reserve’s interest rate decision in October can be used to indirectly observe the extent of the influence of US politics on the Federal Reserve.

Traders will then need to pay attention to multiple sets of U.S. employment and inflation data released before December, especially employment, as the Federal Reserve chairman said the decision-making process downplayed inflation considerations, but the same tariff logic may provide new rhetoric for the impact on the U.S. economy.

Whether the US president will continue to interfere with the Federal Reserve's decision-making through personnel arrangements and other means also needs to be taken into consideration.