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The Federal Reserve will lower by a quarter of a percentage point today, bringing the federal funds rate to between 3.75% and 4%. The move has been signalled for weeks, and markets have priced it in completely. What matters now is what comes next — and that will depend on Chair Jerome Powell’s tone rather than the decision itself. I expect him to sound more dovish, but that doesn’t mean the next cut is around the corner. The Fed appears ready to move from action to observation, stepping back to assess the effects of its recent moves. There might not be another rate cut until the spring or even the summer of 2026, I believe. That prospect may unsettle investors who have grown used to rapid-fire adjustments, but it reflects the central bank’s new reality. has cooled, the economy is slowing, and the Fed can finally shift from firefighting to managing stability. This isn’t the end of easing, but the beginning of a slower, more deliberate phase. The inflation data tell the story. stands at 3%, with at 3.1%. Those figures would have looked uncomfortably high two years ago, yet today they are acceptable progress toward the Fed’s long-term goal. Prices are still rising faster than policymakers want, but the direction is consistent and predictable. The stability allows the central bank to pause. The concern now lies elsewhere: jobs. Hiring has slowed sharply, with just 22,000 new positions added in August. has crept up to 4.3%, the highest since 2021. These numbers don’t point to crisis, but they do show fragility. The Fed’s dual mandate — price stability and maximum employment — now tilts toward the latter. Inflation no longer drives policy; employment does. Every update on wages, labour participation, and job openings has become the market’s new compass. Powell knows this, and his remarks tonight will almost certainly acknowledge it. I expect him to highlight the progress on inflation while emphasising the need for patience as the job market cools. Once the Fed declares that monetary policy is no longer restrictive, it enters a holding pattern. That is where I think we are now. Policy has moved into neutral territory. The next cut will only come if the data show a clear deterioration in employment or a deeper loss of momentum in growth. Investors, meanwhile, must adapt to this slower rhythm. For much of the past year, the prevailing assumption has been that rate cuts would continue at regular intervals. That belief is fading. Markets will need to recalibrate expectations, especially in rate-sensitive sectors such as technology and real estate. A pause could create temporary volatility, but it also builds a more durable foundation for growth later in the cycle. Patience will reward disciplined investors. The next few months are likely to bring a steadier environment for equities and bonds, supported by lower volatility and clearer data trends. The real adjustment will come in currencies. A more patient Fed means a stronger for longer. That could restrain emerging-market performance in the near term, but once the pause gives way to renewed easing, the dollar will lose altitude again, and global risk assets will benefit. The next question is what kind of tone Powell will use at his press conference. If he underscores the importance of labour data, markets will infer that rate policy is effectively on hold. If he highlights risks to growth, traders may interpret that as scope for another cut early next year. Either way, communication will be as influential as the rate move itself. My expectation is that the Fed will err on the side of caution. It will want clear evidence — not sentiment or forecasts — before taking another step. This makes a long pause highly likely. The next cut may not come until the second quarter of 2026, perhaps later. The Fed knows it has time, and that time is now its greatest tool. Investors should recognise that this environment favours balance and selectivity over speed. Markets have already rallied on expectations of aggressive easing. The real test begins when the Fed slows down. The winners will be those positioned for a drawn-out cycle, not a burst of stimulus. The era of emergency rate changes is ending. What replaces it is a careful recalibration of policy aimed at sustaining growth without reigniting inflation. Today’s likely cut is symbolic; a marker of transition. It tells us that the tightening phase is over, but it also warns that the next step won’t come quickly. I believe the Fed will hold its nerve, resist political pressure, and let the data lead the way. For investors, that means one thing: prepare for a pause that lasts.
