Lower Rates

Jerome Powell: I feel like our policy has been doing the right thing so far this year

Summary: The Fed lowered rates last week by 25 bps. Jerome Powell mostly was still trying to manage expectations for future cuts but he's increasingly a lame duck. Trump's new appointee was calling for mid-2% interest rates. AI is probably in a bubble.

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Macro

The Fed cut rates
“At today’s meeting, the committee decided to lower the target range for the federal‑funds rate by a quarter percentage point to 4 to 4 ¼ percent, and to continue reducing the size of our balance sheet.” – Federal Reserve Chair Jerome Powell

People are now expecting more cuts
“The median participant projects that the appropriate level of the federal funds rate will be 3.6 percent at the end of this year, 3.4 percent at the end of 2026, and 3.1 percent at the end of 2027. This path is ¼ percentage point lower than projected in June.” – Federal Reserve Chair Jerome Powell

Powell is trying to manage expectations
“There wasn’t widespread support at all for a – for a 50‑basis‑point cut today. You know, I think we’ve done – we’ve done very large rate hikes and very large rate cuts in the last five years, and you tend to do those at a time when you feel that policy is out of place and needs to move quickly to a new place. That’s not at all what I feel, certainly, now. I feel like our policy has been doing the right thing so far this year.” – Federal Reserve Chair Jerome Powell

But Powell may no longer be in control
“My view of appropriate monetary policy diverges from those of other FOMC members; I view policy as very restrictive, believe it poses material risks to the Fed's employment mandate… I believe the appropriate fed funds rate is in the mid‑2 percent area, almost 2 percentage points lower than current policy.... leaving policy restrictive by such a large degree brings significant risks for the Fed's employment mandate.” – Federal Reserve Governor Stephen Miran

There are no signs of a broad economic slowdown
“Moving to our view of economic conditions. The data points we typically track and discuss aren't indicating a broad slowdown.” – Arthur J. Gallagher (AJG 0.00%↑) CEO Patrick Gallagher

The consumer remains resilient
“Well, the consumer has been remarkably resilient.” – General Motors (GM 0.00%↑) CFO Paul Jacobson

“So the consumer is doing well. We see that in our own asset quality numbers. We saw that last quarter. The asset quality continued to be very, very stable. We can see it again this quarter behaving in the way that we thought it might. So on the consumer side, things are quite constructive. The consumer remains very resilient, and we feel good about that part of the picture.” – Bank of America (BAC 0.00%↑) CFO Alastair Borthwick

“First of all, we're seeing overall retail food spend has been very stable. I think customers are probably cutting back in other areas, but spending on retail food has been kind of flattish.” – The Kroger (KR 0.00%↑) Chairman of the Board Ronald Sargent

Consumer spending has actually accelerated in 2025
“Interestingly, in 2024, we hit a record for consumer spending. On our cards, we could see our customers spending 3.5% more than the year before. So that was 2024. This year, just to give you some idea, credit and debit spending would be about 4.5% more than the year before. So if anything, it's actually accelerated year‑to‑date and that gives you some sense for how the U.S. consumer is feeling today.” – Bank of America (BAC 0.00%↑) CFO Alastair Borthwick

Balance sheets are in good shape
“We can see balances in checking deposits remain very healthy. At the lower end, there are multiples of where they were pre‑COVID. And we can see, obviously, as you will all see home prices in the United States remain in a very good place. Equity markets remain in a very good place. Unemployment it's ticked up maybe 0.1% recently. But again, 4.3%, that's a very strong place for unemployment in the United States. Income growth has been good.” – Bank of America (BAC 0.00%↑) CFO Alastair Borthwick

Labor markets are still relatively healthy
“While the number of U.S. jobs added this past month came in below expectations, the number of job openings is still ahead of the number of people looking for work.” – Arthur J. Gallagher (AJG 0.00%↑) CEO Patrick Gallagher

Optimism is high
“And I will say that compared to April, right after the tariff discussion started, the mood has shifted, Jason, to sort of a sense that our clients can get their arms around what is happening and some of the extreme caution that we saw in the April and May timeframe has given way to sort of more front footedness with clients, so optimism there.” – U.S. Bancorp (USB 0.00%↑) CEO Gunjan Kedia

International