Powell: A Long Farewell

Author: Zhou Hao

Summary:

Last night and this morning’s FOMC meeting, based on the statement wording, voting structure, and post-meeting remarks, the overall tone was clearly hawkish, exceeding market expectations of “moderate neutrality.”

The most notable feature of the meeting was the highly divided voting results. Four dissenting votes set a new high in over thirty years, including three regional Fed presidents explicitly opposing the continued “dovish tilt” in the statement, while another board member advocated for an immediate rate cut. This divergence reinforced market interpretations: at this stage, the FOMC is highly cautious about prematurely signaling easing. Powell himself also openly stated that the committee’s stance has subtly shifted, and he does not rule out adjusting policy guidance as soon as the next meeting.

Choosing to signal hawkishness at the end of his term is hard to interpret as merely a response to short-term economic data; it appears more as Powell’s final insistence on his core principles—maintaining the Fed’s independence and firmly anchoring inflation expectations. Against the backdrop of political cycle shifts and external pressures mounting, he evidently hopes to avoid market misjudgments that the Fed is ready to pivot before inflation is fully under control through clear yet restrained language. This aligns with his long-term policy orientation and can be seen as a “systemic safeguard” left for his successor.

Financial markets responded swiftly. U.S. Treasury yields rose significantly, especially at the short end, with rate expectations being re-priced, the probability of rate cuts this year sharply reduced, and markets even beginning to discuss the possibility of further hikes further out. Geopolitical risks amplified this hawkish interpretation. With Iran entering its third month of conflict, oil prices surged to multi-year highs, and the Fed unusually mentioned both inflation and employment risks in its statement. But overall, these factors served more as reinforcing elements rather than fundamental reasons for a policy shift._

Looking ahead, as Powell gradually steps back from the core stage, policy leadership will pass to Waller. The new phase’s challenge lies in balancing political environment and central bank independence, coordinating balance sheet reduction with rate paths, and managing the pace between inflation decline and economic slowdown. Compared to these complex issues, Powell’s “final meeting” appears particularly direct and resolute—ending on a hawkish note may be his most fitting farewell in his mind._

Last night and this morning’s FOMC meeting was destined not to be just a routine rate decision. At this juncture, with his term nearing its end, Powell left a distinctly personal mark on his chairmanship: rates unchanged, but with a clearly hawkish stance, even more so than market expectations. This choice is less about immediate economic outlook judgments and more about a longer-term, institutional expression._

On the surface, the policy outcome was straightforward: the Fed kept rates in the 3.50%–3.75% range, aligning with most institutions’ “hold steady” view. But what truly triggered market reactions was the statement wording and voting results themselves. Four dissenting votes, a rare high in over thirty years; more importantly, the dissent mainly focused on rejecting the “dovish tilt,” rather than advocating for further easing. This structural split, to some extent, actually accentuates the hawkish tone of policy.

Powell’s post-meeting remarks also did not attempt to “calm” the markets. He explicitly acknowledged that internal committee views are subtly shifting and did not rule out the possibility of removing the easing bias entirely at upcoming meetings. In a meeting viewed as a “farewell performance,” such language is particularly meaningful. For a departing chair, ending on a hawkish note is hard to interpret as anything but a deliberate and clear decision.

Behind this decision is Powell’s consistent core concern—preserving the Fed’s independence and firmly anchoring inflation expectations. Against the backdrop of shifting political cycles and rising external interference, he clearly prefers to leave a transparent, even slightly hawkish, policy signal: the Fed’s decision-making should not be swayed by short-term emotions or political pressures. From this perspective, this meeting may well be Powell’s “most desired action” as the central banker, and a principled stance at the end of his term._

Markets quickly understood this. After the decision, U.S. Treasury yields surged, especially at the short end, with the two-year yield recording the most significant FOMC decision-day increase since 2022, and long-term yields rising to a one-month high. Rate expectations were re-priced accordingly, with the prospect of rate cuts this year almost marginalized, and the risk of further hikes in the longer term reintroduced, even prompting discussions about potential tightening in 2027. Equity markets came under pressure, particularly interest-rate-sensitive sectors, reflecting concerns about a possible tightening of financial conditions._

Of course, external factors also provided a realistic backdrop for this hawkish interpretation. With Iran’s conflict entering its third month, oil prices hit near four-year highs, and the Fed unusually mentioned both inflation and employment risks in its statement. But it’s important to note that this conflict acts more as an amplifier than a fundamental reason for a policy shift. Even without geopolitical disturbances, the internal caution within the FOMC about prematurely signaling easing is already quite clear from the voting structure and language of the statement._

More noteworthy is the future of the Fed after Powell. Although he will remain as a board member, the policy baton will eventually pass to Waller. Compared to short-term labels like “hawkish,” the real challenge ahead is how to balance rising political pressures with the independence of the central bank, coordinate balance sheet reduction with rate paths, and find a credible turning point amid inflation easing and economic slowdown.

Compared to these complex and thorny issues, Powell’s “final meeting” appears simple and restrained: he chooses to prioritize inflation control and institutional independence, ending his chairmanship with a hawkish stance. This may not be the most comforting for markets, but from a historical perspective, such a farewell may well be his most fitting way to conclude.