The Populist Pivot of Jerome Powell
Powell is talking. Markets are listening. The narrative has shifted from inflation targets to social cohesion. The recent video release from the Federal Reserve marks a departure from decades of cryptic central bank signaling. It is a calculated move. ING Economics labeled this shift Powell to the People. The branding is deliberate. The goal is clear. The Fed is attempting to manage the psychological floor of a slowing economy without sparking a panic in the credit markets.
Liquidity is a ghost. It vanishes when you need it most. Powell knows this. By addressing the public directly through a high production value video, the Chair is bypassing the usual gatekeepers on Wall Street. This is not just a PR stunt. It is a fundamental realignment of how the FOMC communicates the neutral rate of interest. The technical term is R-star. It represents the interest rate that neither stimulates nor restrains the economy. For years, R-star was a theoretical ghost. Now, it is the center of a heated debate between the hawks and the doves.
The Technical Reality of the Neutral Rate
The Fed is currently grappling with a bifurcated economy. Real estate remains frozen by high legacy costs. Technology sectors are shedding weight. Yet, the service sector continues to hum. This divergence makes the standard tools of monetary policy less effective. When Powell speaks to the people, he is trying to anchor inflation expectations at the kitchen table. He knows that if the public expects 2 percent inflation, they will behave in ways that make it a reality. This is the essence of reflexive economics. Per recent reports from Reuters, the divergence in consumer sentiment is reaching levels not seen since the early 1980s.
We are seeing the end of the era of Quantitative Tightening. The balance sheet is still massive. The Fed has been rolling off assets, but the pace is slowing. This is the taper of the taper. Financial institutions are watching the Reverse Repurchase Agreement (RRP) facility like hawks. The RRP is the drainage system for excess cash. When it runs dry, the plumbing of the global financial system starts to creak. The video mentioned by ING suggests that the Fed is preparing for a more permanent presence in the repo markets to ensure stability as they navigate the terminal rate of this cycle.
Visualizing the Rate Trajectory
The data suggests a steady descent. The following chart illustrates the movement of the Fed Funds Rate over the last twelve months, leading up to the current January 17 pivot point.
Fed Funds Rate Trajectory: The Path to the January 2026 Pivot
Market Projections vs Reality
The gap between what the Fed says and what the market believes is narrowing. This is a rare occurrence. Usually, the bond market leads and the Fed follows. This time, Powell is attempting to lead the bond market through sheer force of personality. The following table breaks down the key economic indicators that the Fed is using to justify its current stance, compared to the consensus forecasts from Bloomberg.
| Economic Metric | FOMC Projection | Market Consensus | Variance |
|---|---|---|---|
| Core PCE Inflation | 2.3% | 2.5% | -0.2% |
| Unemployment Rate | 4.4% | 4.6% | -0.2% |
| GDP Growth (Annualized) | 1.8% | 1.5% | +0.3% |
| Terminal Rate | 3.75% | 3.50% | +0.25% |
The Fed is betting on a soft landing. It is a dangerous game. If they cut too fast, inflation returns. If they wait too long, the labor market collapses. The ING Economics tweet highlights the irony of the situation. Powell to the People is a slogan that fits a political campaign, not a central bank. But in 2026, the lines between fiscal policy and monetary policy have blurred. The Fed is no longer just the lender of last resort. It is the communicator of last resort.
Debt servicing costs are the hidden engine of this volatility. The U.S. Treasury is issuing debt at a record pace. The Fed must ensure there is enough demand for these bonds without monetizing the debt. It is a tightrope walk over a canyon of insolvency. Investors are looking for any sign of weakness in the primary dealer auctions. According to data from the SEC, institutional hedging against a failed auction has increased by 14 percent since the start of the year.
The video Powell released focuses on the resilience of the American worker. It ignores the fragility of the American balance sheet. This is the sleight of hand required for modern central banking. You must project confidence even when the underlying data is brittle. The ING Economics analysis suggests that the Fed’s best headline of the week is a distraction from the worsening credit conditions in the mid-market lending space. Banks are tightening. Credit spreads are widening. The people Powell is talking to are starting to feel the squeeze.
The next milestone for the markets will be the February 4 release of the Senior Loan Officer Opinion Survey. This data point will reveal if the Fed’s populist rhetoric is translating into actual lending in the real economy. Watch the commercial and industrial loan volumes. If they continue to contract despite Powell’s reassuring words, the populist pivot will have failed its first major test.
