Yujie He @hyjbrighter: "𝗥𝗮𝘁𝗲𝘀 𝗛𝗼𝗹𝗱 𝗦𝘁𝗲𝗮𝗱𝘆 𝗮𝘀 𝗣𝗼𝘄𝗲𝗹𝗹..."

Ireland

𝗥𝗮𝘁𝗲𝘀 𝗛𝗼𝗹𝗱 𝗦𝘁𝗲𝗮𝗱𝘆 𝗮𝘀 𝗣𝗼𝘄𝗲𝗹𝗹 𝗦𝗼𝘂𝗻𝗱𝘀 𝗔𝗹𝗮𝗿𝗺 𝗼𝗻 𝗨𝗦 𝗗𝗲𝗯𝘁 "𝗘𝗻𝗱𝗴𝗮𝗺𝗲" KEY POINTS • Fed Pauses: The FOMC voted to leave interest rates unchanged on Jan 28 after three previous cuts. • 2026 Outlook: The economy is entering the new year on "firm footing" with stabilizing unemployment. • Debt Warning: Chair Powell calls the US fiscal path "unsustainable," warning of a difficult "endgame" if unaddressed. 🛑 𝗧𝗵𝗲 𝗣𝗮𝘂𝘀𝗲: 𝗪𝗵𝘆 𝗥𝗮𝘁𝗲𝘀 𝗔𝗿𝗲𝗻'𝘁 𝗗𝗿𝗼𝗽𝗽𝗶𝗻𝗴 𝗬𝗲𝘁 After lowering the policy rate by 75 basis points over the previous three meetings, the Federal Open Market Committee (FOMC) decided the current stance is appropriate to balance their dual goals of maximum employment and 2% inflation. Powell noted that the US economy expanded at a "solid pace" last year and has kicked off 2026 on a "firm footing". While inflation remains "somewhat elevated," the labor market has shown signs of stabilization. When pressed by reporters on the timeline for future cuts, Powell emphasized that the Fed has not made decisions for future meetings. "We'll be looking to our goal variables and letting the data light the way for us," Powell stated, indicating a meeting-by-meeting approach rather than a pre-set schedule. 📉 𝗪𝗵𝗮𝘁 𝗪𝗶𝗹𝗹 𝗧𝗿𝗶𝗴𝗴𝗲𝗿 𝘁𝗵𝗲 𝗡𝗲𝘅𝘁 𝗖𝘂𝘁? Investors looking for a signal on the next rate drop should watch the jobs report. Powell made it clear that while risks to both inflation and employment have diminished, the Fed is prepared to act if the labor market cracks. "Certainly a weakening labor market would be an argument for loosening," Powell explained. However, he noted that if the labor market remains strong, rates are likely in a "good place" unless inflation falls significantly. Currently, the Fed sees the upside risk to inflation and the downside risk to employment as having diminished, placing them in a position to wait and watch. ⚠️ 𝗧𝗵𝗲 "𝗘𝗻𝗱𝗴𝗮𝗺𝗲": 𝗔 𝗪𝗮𝗿𝗻𝗶𝗻𝗴 𝗼𝗻 𝗨𝗦 𝗗𝗲𝗯𝘁 In a sobering moment during the Q&A, Powell addressed the long-term risks of US government spending. When asked if the US could face turmoil similar to the Japanese bond market, Powell was blunt: the current fiscal path is "unsustainable". "The level of debt is not unsustainable... but the path is unsustainable," Powell clarified. He expressed concern that the US is running a "very large deficit at essentially full employment," a situation that is rare in economic history. While Powell assured reporters that he does not foresee a "near-term market event," he warned that without action, the situation will eventually lead to a crisis. "In the endgame that's... where you wind up is in some kind of a difficult thing," Powell cautioned, adding that the issue is currently "not really being addressed" by lawmakers. 🛍️ 𝗧𝗵𝗲 "𝗧𝗮𝗹𝗲 𝗼𝗳 𝗧𝘄𝗼 𝗖𝗼𝗻𝘀𝘂𝗺𝗲𝗿𝘀" Powell also highlighted a growing divide in the American economy. While higher-income households are buoying the economy due to rising asset values in real estate and stocks, lower-income families are feeling the squeeze of five years of rising prices. "Wealthier households... tend to own real estate and tend to own stocks... and those assets have been going up in value," Powell said, noting that this wealth effect supports spending. Conversely, retailers serving lower-income customers are reporting a shift in behavior. These consumers are "looking to economize" and "trading down from brands," signaling that while they are still spending, they are "feeling it in a different way" than their wealthier counterparts. 🔮 𝗪𝗵𝗮𝘁’𝘀 𝗡𝗲𝘅𝘁? For now, the Fed remains in a "wait-and-see" mode. With growth solid and unemployment stable, there is no immediate pressure to cut rates further unless the data changes. However, Powell’s comments serve as a reminder that while the immediate economic picture is solid, long-term fiscal challenges loom large on the horizon $SPY (State Street SPDR S&P 500 ETF) $SPX500 $NSDQ100

Not investment advice. The author may have financial interests in the mentioned instruments.

3 Mentioned

SPY

State Street SPDR S&P 500 ETF

SPX500

SPX500 Index (Non Expiry)

NSDQ100

NASDAQ100 Index (Non Expiry)

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