The Cautious Cut: Powell's Theater of Modest Expectations

A memo from the desk of someone who watched the Fed stumble through its latest performance

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INTERNAL MEMO

TO: Portfolio managers who still believe central bankers operate with conviction
FROM: Your correspondent who watched Powell fumble through another press conference
RE: Why the Fed's first cut in nine months feels like a committee afraid of its own shadow

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The Federal Reserve cut rates by 25 basis points last week, bringing the fed funds rate to 4.00%-4.25%. Powell called it a response to a "cooling" labor market, though what he really meant was: we're terrified of being behind the curve again, so here's a symbolic gesture that changes precisely nothing.

Here's what strikes me about this whole charade. The Fed spent the better part of 2024 and early 2025 insisting they had inflation under control, unemployment was manageable, and the economy was achieving some mythical "soft landing." Then suddenly, in September, they discover the labor market is deteriorating fast enough to warrant their first cut since December 2024.

Either they were lying to us before, or they're panicking now. Neither option inspires confidence.

Powell framed this as a "risk management cut" — Fed-speak for "we don't really know what we're doing, but we're doing something anyway." Risk management would have been cutting rates six months ago when the data first started showing cracks. Risk management would have been honest communication about the trade-offs they were making. Instead, we get this theater of deliberation followed by the most tepid policy response imaginable.

The market, of course, loved it. Stocks hit record highs after the cut, because apparently a quarter-point reduction is enough to justify valuations that already assumed the Fed would ride to the rescue. The Pavlovian response is complete: ring the rate-cut bell, watch the algos buy everything.

But here's the uncomfortable truth hiding behind the celebration. New Fed Governor Stephen Miran, freshly sworn in as Trump's pick, was reportedly pushing for a more aggressive 50 basis point cut. The political appointee wanted bigger cuts than the career central bankers. Think about that dynamic for a moment. The independence of the Fed isn't just being questioned from outside — it's being challenged from within by governors who owe their positions to political calculations.

The dot plot tells the real story. One governor's projection sits far below the consensus, indicating support for much more aggressive easing. This isn't monetary policy; it's a bureaucratic compromise between people who can't agree on the severity of the economic problems they're supposed to be solving.

Meanwhile, recession fears are making a comeback as consumer spending slows and debt concerns grow. The very conditions the Fed thought they'd navigated successfully are reasserting themselves. The soft landing narrative was always more hope than analysis, and now we're seeing why.

What really galls me is the pretense that this cut represents some kind of measured, data-driven response. Powell's Fed has spent years being reactive rather than proactive, always a step behind the curve, always explaining why their previous predictions didn't pan out. They missed the inflation surge, they missed the persistence of price pressures, they missed the timing of when to start cutting, and now they're cutting too little, too late, while pretending it's all part of some grand strategy.

The honest version of last week's statement would have read: "We realize we have no idea what we're doing, the labor market is weakening faster than we anticipated, political pressure is mounting, and we're cutting rates because it's the only tool we have, even though 25 basis points won't meaningfully impact anything."

Instead, we get Powell's measured cadence explaining how this modest adjustment represents appropriate policy normalization in response to evolving economic conditions. The bureaucratic language masks what everyone in that room knows: they're winging it.

The most telling detail? CD rates are still yielding up to 4.45% even after the cut. The banks haven't gotten the memo that this rate reduction is supposed to matter. Credit conditions remain tight, mortgage rates are still elevated, and corporate borrowing costs haven't budged in any meaningful way. The transmission mechanism of monetary policy — the part where rate cuts actually impact the real economy — remains broken.

So here we are, celebrating a quarter-point cut that changes nothing, delivered by a central bank that consistently misreads the room, while pretending this represents sound stewardship of the world's most important monetary policy.

The markets may be hitting record highs, but don't mistake the sugar rush for genuine economic health. This cut wasn't strength; it was the Fed admitting they're out of good options and hoping no one notices.

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