Federal Reserve Chair Jerome Powell recently found himself in an awkward situation—policy stance beginning to diverge from economic realities.

Data shows that the problem indeed exists. The latest US CPI year-over-year increase is 2.7%, in line with market expectations; core CPI is at 2.6%, even below expectations, and roughly unchanged from the previous period. Inflation shows no signs of rebound and is instead steadily declining. More detailed real-time data indicates that the actual inflation rate has fallen below 1.8%, meaning inflationary pressures have been significantly alleviated.

But what about the Fed’s attitude? Staying the course. Continuing to hold steady under the pretext of preventing a rebound in inflation, this conservative stance is causing confusion in the market.

A clear policy contradiction has emerged. Remember the situation before the 2024 election? At that time, core CPI was as high as 3.3%, and the unemployment rate was 4.1%. The Fed unexpectedly cut interest rates by 50 basis points. Now, the data looks more optimistic—core CPI has fallen to 2.6%, but the unemployment rate has risen to 4.4%, and the Fed has turned hawkish. Where is the logic?

The side effects of high interest rates are already evident. Corporate financing costs are high, consumer demand is weak, and economic growth is hindered. The Fed’s lagging policy actions have effectively caused tangible damage to the economy. The market is eager for more proactive rate cuts, but the central bank seems still committed to defensive measures.

This policy contrast also provides ample ammunition for critics of Powell. They see through the lagging nature of the policy and are pushing public opinion toward opposition.

The reality is clear: the Fed’s policy pace has fallen behind the rhythm of economic activity. Before 2026, rate cuts must materialize; otherwise, risks will continue to accumulate, and the central bank’s credibility will be damaged. This is not good news for financial markets or the real economy.