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The Fed cut came as expected, but 2025 is shaping up to feel more like a pause, with officials expecting half the rate cuts they did in September .

The labor market is cooling, but it isn't raising concerns. Inflation forecasts are increasing, but overall progress is steady. In the final policy decision before the second Trump administration , Fed Chair Powell tried to make sense of contradictory storylines and conflicting data. And amid all the uncertainty, the central bank chief delivered a final watchword: caution.

"When the path is uncertain you go a little bit slower," Powell said Wednesday during the press conference. "It's not unlike driving on a foggy night or walking into a dark room full of furniture. You just slow down." (Someone get this silver-haired gift-giver an incandescent reindeer!)

To hear Powell tell it, the story of inflation coming down is actually intact . Even as the Fed announced a third consecutive cut, equivalent to a whole percentage point, monetary policy is still restrictive. That's because officials still believe inflation will be an ongoing challenge under the next administration. Compared to previous estimates, central bankers forecast inflation ending this year higher than expected and lingering at a higher rate next year.

Blame COVID. Or the economic gyrations that followed the public health crisis.

“The story is still just we’re unwinding from these large shocks that the economy got in 2021 and 2022," Powell said.

If pricing pressures remain stubborn , the risks of a deteriorating labor market — the other side of the Fed's mandate — appear to have subsided. As have the risks of the labor market contributing to higher prices. Powell said the labor market is where it should be, looser than it was before the pandemic and still cooling, but not enough to raise alarm bells. To wit, the Fed actually lowered its unemployment forecasts from 4.4% to 4.2% for the end of this year and from 4.4% to 4.3% next year.

Read more: What the Fed rate cut means for bank accounts, CDs, loans, and credit cards

The market's initial reaction was to pull back, bringing the worst single hour for stocks since the COVID crisis, Bloomberg noted.

Fewer anticipated cuts is another year of "higher for longer," which seemed to trump Powell's caveat-laden optimism. But as Neil Dutta, head of economic research at Renaissance Macro, noted , the Fed may have lowered the bar for future cuts by revising its inflation forecasts up and its unemployment estimates down.