Powell's signals are reshaping expectations of rate cuts

The outgoing Federal Reserve chairman’s last public appearance reveals a less hawkish stance than expected. During his Q&A session, Powell deliberately avoided addressing sensitive topics unrelated to his official duties, confirming his transitional state before his official departure from the central bank.

Key points of the speech: neutral rates and controlled tariffs

Two main messages stand out from this speech. On one hand, Powell reaffirmed that interest rates are currently at the upper limit of the neutral zone, leaving room for potential downward adjustments. On the other hand, he described tariffs as an isolated tariff increase, with its impact on the core PCE index (excluding tariff effects) remaining marginal, slightly above 2%. This stance on inflation data is very healthy and opens prospects for future monetary easing.

How the market is pricing in Powell’s departure and Trump’s ambitions

Market consensus has sharpened: no rate cuts are expected before May, with Powell maintaining his position until the last days (a way to resist external pressures). But the key observation lies in the new variable: the market now assesses that his successor, appointed by Trump, will implement significant rate cuts after this departure. This transition dynamic creates an anticipation of palpable monetary relief.

Why the Chinese New Year offers a bullish opportunity

Given the calendar, a market rally before May seems likely, especially during the Chinese New Year period. Investors positioned for gains could capitalize on this bullish momentum, as global markets react to the prospect of more accommodative monetary policy after Powell’s departure. This scenario combines expectations of easing, favorable timing, and a leadership transition at the Federal Reserve.