Powell's term is entering its final countdown as the Federal Reserve signals a longer pause before the next rate cut.

As the tenure of Federal Reserve Chair Jerome Powell approaches its end, the policy tone of the U.S. central bank is stabilizing. Powell stated at a press conference on Wednesday that he believes the economy remains on a “solid footing,” which also suggests that the Fed may enter a prolonged period of pause in rate cuts.

Following the Federal Open Market Committee (FOMC) meeting held on January 27-28, the Fed maintained the federal funds rate in the 3.5% to 3.75% range with a vote of 10-2. Previously, the Fed had cut rates by a total of 75 basis points in the second half of last year. Fed officials Waller and Mester voted against the decision, advocating for an additional 25 basis point rate cut.

The policy statement indicated that the FOMC upgraded its description of economic growth from “moderate expansion” in December to “robust growth,” noting that employment growth remains somewhat subdued but signs of stabilization in the unemployment rate are evident. Additionally, the Fed removed previous language about increased risks of a downturn in the labor market and emphasized that inflation “remains slightly elevated.” Powell also reiterated to reporters that the current policy rate is “close to a neutral level,” and can be adjusted flexibly based on future data.

Vincent Reinhart, Chief Economist at BNY Mellon Investment Management and a former senior Fed official, said that last year’s rate cuts were akin to “buying insurance” against further weakening of the labor market. However, employment has not deteriorated significantly, and inflation remains above target, supporting the Fed’s decision to keep policy unchanged. Analysts at Morgan Stanley and Macquarie also believe Powell’s comments reinforce a “longer period of holding steady,” although markets still expect a mild easing later this year.

Powell’s tone on the economy has become more optimistic compared to previous months. He mentioned that consumer resilience persists, business investment continues, and productivity is rising. He also acknowledged that low-income households are under pressure, forced to cut back on spending and turn to cheaper alternatives. He pointed out that part of the recent economic growth is driven by early investments related to artificial intelligence.

Regarding inflation, Powell estimates it remains around 3%, significantly above the Fed’s 2% annual target. He attributes this mainly to tariffs pushing up prices on goods, though inflation in the service sector continues to decline. Powell stated that the most severe impacts of tariffs may gradually fade before the end of this year and emphasized that “raising interest rates is not anyone’s baseline scenario.”

Despite previous warnings that there is no “risk-free path” for the Fed due to the coexistence of inflation pressures and a soft labor market, Powell adopted a more proactive stance at this press conference. Stephen Douglass, Chief Economist at NISA Investment Advisors, noted that Powell emphasized that the risks of stagflation are diminishing, with both upside inflation risks and downside employment risks easing.

On political issues, Powell remained cautious. He refused to comment on the Department of Justice subpoena, White House criticisms, the dollar exchange rate, or whether he would stay on the Fed Board after his term ends, repeatedly responding with “I don’t have more information.”

However, when asked why he personally attended oral arguments at the U.S. Supreme Court regarding former President Trump’s attempt to remove Fed Board member Christopher Waller, Powell responded that it might be “the most important legal case in the Fed’s 113-year history.” He said that Fed chairs have precedent for attending such hearings, and being present makes it easier to explain to the public than if they were absent.

Powell also delivered a lengthy speech on the independence of the central bank. He emphasized that independence aims to protect the public from the risk of monetary policy being used for short-term political gains, which would be difficult to restore once lost. He also stated, “We have not lost this independence, and I believe we will not.”

The market widely expects U.S. President Trump to announce Powell’s successor in the coming weeks. Powell said he would give three pieces of advice to his successor: stay away from election politics, consider communication with Congress as a core responsibility, and rely on the Fed’s professional staff committed to the public interest.

Notably, the two dissenting votes at this meeting somewhat contrast with Powell’s optimistic economic tone. Mester, appointed recently by Trump, has consistently advocated for rate cuts in every meeting she participated in. Waller’s dissent is more noteworthy because it lacked obvious prior indication. Reinhart believes this makes Waller’s dissent more significant. Waller is also considered one of the four candidates Trump might choose as the next Fed Chair.