Will the Fed continue to support the financial markets? - November 3, 2025

After Jerome Powell's contradictory messages at his last press conference, investors are wondering. However, we believe that the Fed still has real room for manoeuvre, thanks to a rather encouraging disinflationary environment.

Jerome Powell surprised the markets by blowing hot and cold on 29 October. Internal debates within the Fed led him to temper expectations: a further rate cut in December is no longer a foregone conclusion, following those in September (-25 bp) and October (-25 bp). Stephen Miran, representing the Trump administration, continues to argue for more significant easing, while Jeffrey Schmid, president of the Kansas City Fed, has for the first time opposed further monetary easing. Several central bank officials are also expressing caution in a political environment that threatens its independence and due to a shutdown that is disrupting the publication of economic statistics.

However, Powell's assessment remains broadly favourable to an accommodative stance. The US economy remains low on inflation. Jerome Powell even cited an estimate of ‘2.3 to 2.4%’ for the consumer price deflator adjusted for the effect of tariffs. Our own calculations – which assume stable goods inflation throughout 2025 – lead to a similar result (Chart 1).

Two dynamics explain this result: moderation in rents and a certain sluggishness in the labour market. There has been no massive wave of layoffs, but hiring is drying up. According to the ADP survey, private employment even declined in September, contributing to the continued trend of wage disinflation (Chart 2).

This observation of a less inflationary economy is confirmed on another front. According to S&P Global, US companies have moderated their price increases since the summer (Chart 3), despite higher import costs. S&P Global attributes this lack of pricing power to moderate demand and strong competition.

With monetary policy remaining ‘modestly restrictive’ according to Jerome Powell, the Fed retains the option of further lowering interest rates in this rather disinflationary environment. This situation is almost ideal for financial markets: growth expectations remain buoyant thanks to the AI boom and the gradual stabilisation of trade policy, while the Federal Reserve retains its ‘put’, i.e. its ability to intervene to reassure investors in the event of economic problems.

Ultimately, however, this balance could be challenged if the labour market strengthens while the effect of higher tariffs continues to be felt on prices. This is undoubtedly what is prompting some Fed members to argue for greater caution. For now, we believe that the Fed's ‘put’ remains intact. We are therefore maintaining our position in 10-year US bond futures, which serve as a partial hedge against equity risk in our main global wealth fund.