Is Jerome Powell’s likely rate cut pause a warning?

The Federal Reserve’s latest decision – a modest 25-basis-point rate cut and the announcement that quantitative tightening will end on December 1 – is, in my view, the last rate move we’ll see this year.

Chair Jerome Powell’s comment that another cut in December is “not a foregone conclusion” makes it clear that the Fed is pausing, not pivoting.

The likely pause is no sign of control. It’s a sign of unease. I believe the United States is heading toward a period where inflation stays elevated while job growth continues to weaken – the uncomfortable shape of stagflation.

Prices are sticky, wages are slowing, and confidence is thinning. This is not a crisis yet, but it could easily evolve into one if the Fed misjudges the next step.

Earlier in the year, the central bank spoke with one voice. But the unity has gone. The latest 10–2 vote exposed deep divisions: Governor Stephen Miran wanted a bigger 50-basis-point cut; Kansas City Fed President Jeffrey Schmid wanted none at all. A once-coordinated Fed is now a fractured one. That breakdown of consensus is, in my view, the biggest risk to credibility.

The Fed is trapped between two equally difficult realities. Inflation is still too high, but the economy is showing signs of fatigue. The labour market is softening, the unemployment rate is edging up, and hiring momentum is fading.

If policymakers cut again, they risk stoking inflation. If they hold, they risk pushing growth into stall speed. My expectation is that hesitation will win – and that would mean no more rate cuts this year.

Complicating matters further, the government shutdown has blocked the release of key economic data. Without reliable numbers on jobs, inflation, or retail sales, the Fed is flying blind. When central banks lose visibility, they lose confidence.

Powell’s cautious tone reflected that. In my assessment, the Fed will now take a wait-and-see approach rather than risk over-easing in the dark.

The decision to end quantitative tightening adds another layer to this story. It signals that the Fed’s immediate priority is liquidity, not stimulus. Since 2022, QT has drained more than $2 trillion from the balance sheet. Ending that process stabilises reserves, but it also confirms that the Fed is reacting to growing stress beneath the surface. This is not an offensive policy move – it’s defensive.

I expect this shift to have global implications. When the Fed stops shrinking its balance sheet, the world feels it. Dollar liquidity defines global financial conditions. Other central banks will take their cues from this pause, not necessarily by cutting themselves, but by softening their language and reassessing their own inflation outlooks.

The bigger issue, though, is domestic. The US economy, in my view, is entering a period of slower growth and persistent inflation. That combination is not easily fixed. Inflation may cool slightly, but not enough. Job losses may rise slowly, but not dramatically. It’s a grinding middle ground – the early phase of stagflation, where policy tools lose their bite.

The danger is that the Fed begins to rely on hope rather than evidence. Hope that inflation will fade on its own. Hope that job growth will return without intervention. Hope that markets will stay calm as liquidity stabilises. But hope is not a strategy.

From where I stand, the next few months will test Powell’s credibility more than any period since the post-pandemic tightening cycle began. The Fed is divided, uncertain, and politically pressured. Inflation will, I believe, remain stubborn. Employment will weaken further and markets will grow more volatile as the illusion of a coordinated central bank fades.

This environment calls for realism. Liquidity conditions may ease slightly as QT ends, but the broader economy is slowing. The Fed’s room for manoeuvre has narrowed to almost nothing. The era of clear forward guidance is over. We’ve entered one of blurred lines and conflicting signals.

There will, in my opinion, be no more rate cuts this year. Inflation will stay higher for longer. The jobs market will soften further. The Fed has lost the comfort of consensus, and the economy is losing momentum. Risks of stagflation are issues investors shouldn’t ignore.

Nigel Green is the group CEO and founder of deVere Group, an independent global financial consultancy.

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