Up on the tightrope

The position of Chair of a central bank sometimes resembles that of a juggler perched on a tightrope – a true balancing act. This exercise is even more dangerous when the time comes to pivot, that is, when the central bank changes the direction of its intervention rates. The last meeting of the US Federal Reserve on 16 and 17 September looks to be a textbook case of this phenomenon.

Pulled between an uncertain inflation outlook due to Donald Trump’s trade tariff hikes, the effects of which are proving slow to materialise, and a labour market where the downturn accelerated this summer, Jerome Powell managed to pull off this delicate feat without a wobble.

In addition to being torn between these two targets, today pulling in opposite directions – raising rates to prevent a surge in prices or cutting them to prevent the downturn in the labour market from slowing growth – Fed Chair Powell is facing increasingly diverging views among members of his decision-making body. Already at the previous meeting, two members of the Federal Open Market Committee (FOMC), the body responsible for taking monetary policy decisions, stated that they were in favour of cutting rates, whilst the majority voted for the status quo. This time, the newly appointed FOMC member, Stephan Miran, marked his arrival by stating his desire to cut rates dramatically by the end of the year, pleading for another five cuts by December, whilst the other voting members forecast just two on average, and a maximum of three.

Jerome Powell also has to juggle political pressures and the demands of the bond markets: President Trump is insisting that the Fed should rapidly cut its rates by an unprecedented amount, whereas the market is expecting three cuts of 25 basis points each in 2025 and a further three next year.

The high-wire performance generally reaches its climax at the press conference following the Fed’s decision. Let’s not forget Fed Chair Alan Greenspan’s famous words, “If I seem unduly clear to you, you must have misunderstood what I said”. In contrast to his predecessor, Jerome Powell successfully explained his decision, qualifying it as a “risk management cut”[1], thus signalling that this cut is not necessarily the prelude to a cycle of cuts of the magnitude that markets may be expecting. Despite this snub to the market, Jerome Powell’s decision did not provoke any instability – the bond market volatility index fell after his intervention and is currently moving at a level that is as low as it has been since the beginning of 2022.

The fact that this decision was well received by financial markets – yields down, equities up, volatility declining – is perhaps down to Powell’s well-balanced tightrope act. It may also be down to one of the lessons of stock market history: six times out of six when the Fed has restarted a cycle of rate cuts after a pause, one year later, the equity market was higher. Up on the wire, the tightrope walker had this safety harness[2].

Final version of 19 September 2025, Clément Inbona, Fund Manager, La Financière de l’Échiquier (LFDE)

Disclaimer: The opinions expressed in this document reflect the views of the manager. LFDE shall not be held liable for these opinions.