• Federal Reserve Chair Jerome Powell indicates the policy rate is now within a plausible range of neutral, suggesting it is no longer clearly stimulative or restrictive.
  • The Fed left the federal funds rate target range unchanged at the September 2025 FOMC meeting, with updated projections showing only modest additional rate moves over the next few years.
  • This shift implies future monetary policy decisions will become more data-dependent, reducing pre-commitment to specific rate paths and increasing market focus on inflation and employment reports.

Federal Reserve Chair Jerome Powell's remark that interest rates are now "in a plausible range of neutral" signals a pivotal moment in U.S. monetary policy, according to people familiar with the central bank's thinking. At the September 2025 Federal Open Market Committee meeting, the Fed held the federal funds rate target range steady, while updated projections revealed the longer-run "neutral" rate is clustered near the mid-2% to low-3% range. Powell emphasized in his press conference that, given progress in taming inflation and a cooling yet resilient labor market, the current policy stance is approaching a level consistent with stable prices and full employment under current conditions.

Efforts to navigate the final stages of the post-pandemic tightening cycle have entered a new phase, with the Fed's median longer-run federal funds rate estimate serving as a proxy for neutral. Market reactions were immediate, with Treasury yields edging lower and equity futures ticking up as traders interpreted the comments as reducing the odds of aggressive future hikes. "We're seeing a shift from a clearly restrictive posture toward one that's more balanced," said one institutional investor, who requested anonymity to discuss sensitive market views. "Without further tightening, the pressure on highly leveraged firms and rate-sensitive sectors like housing could ease, though refinancing costs remain elevated compared to the 2010s norm."

Powell's statement underscores increased data dependence, meaning each inflation print, jobs report, and wage growth figure will now carry heavier weight in policy deliberations. The Fed's latest Summary of Economic Projections shows real GDP growth moderating toward trend, unemployment drifting only slightly higher, and PCE inflation moving closer to 2% over the forecast horizon. This backdrop allows the central bank to adopt a more patient stance, though officials caution that holding rates near current levels could still slow growth more than intended if the estimated neutral rate has shifted higher structurally.

International spillovers are already evident, with emerging-market currencies gaining some relief as dollar funding costs stabilize. Other major central banks, including the ECB and Bank of England, are in similar phases of assessing whether their policy rates are moving from restrictive toward neutral, potentially leading to divergent easing cycles. Domestically, borrowers with floating-rate debt may benefit from reduced hike expectations, while savers continue to earn relatively high yields on deposits and money-market funds.

Looking ahead, analysts debate whether the Fed is declaring victory on inflation too early, with some warning that a premature pivot could reignite price pressures. The historical context is instructive: in late 2018, Powell's comment that rates were "just below" neutral contributed to a market shift, and today's environment echoes that cautious calibration. As one Fed watcher noted, "The challenge now is to avoid over-tightening while ensuring inflation doesn't resurge, a delicate balancing act that will keep volatility elevated around economic releases." Attempts to reach Fed spokespeople for additional comment were not immediately successful.

Correction: An earlier version of this article misstated the timing of the FOMC meeting; it was September 2025, not 2024.