Fed Chairman Jerome Powell began his highly anticipated speech in Jackson Hole, Wyoming.
Powell offered a lukewarm signal about interest rate cuts, while highlighting the high level of uncertainty that makes the job of monetary policymakers difficult.
Highlights of Powell’s speech at the Jackson Hole symposium are as follows:
“When I took this podium a year ago, the economy was at a turning point. Our policy interest rate had been hovering between 5.5% and 5.5% for more than a year. This restrictive policy stance was appropriate to help reduce inflation and maintain a sustainable balance between aggregate demand and supply. Upside risks to inflation had diminished.
But this year, the economy is facing new challenges. Significantly increased tariffs across our trading partners are reshaping the global trading system.
While the labor market appears to be in equilibrium overall, this equilibrium is a curious one, emerging as a result of a significant slowdown in both labor supply and demand.
This unusual situation suggests increasing downside risks to the labor market.
Turning to inflation, the latest data show that 12-month PCE inflation rose by 2.6% in July. Core inflation rose by 2.9%.
Labor supply has weakened in line with demand.
The balance of risks is shifting. At this point, the fact that policy is in restrictive territory, the fundamental outlook, and the changing balance of risks may require us to adjust our monetary policy stance.
“Tariffs pose a risk of a resurgence in inflation, and a recession remains a scenario the Fed must avoid. However, the baseline scenario is that we believe the impact of tariffs on inflation will be short-lived.”
Powell’s speech appears to have been cautiously moderate, hinting at potential interest rate cuts but making no commitment to a definitive rate cut.
The Kobeissi Letter assessed that the Fed would cut interest rates by 25 basis points in September and “blame” the labor market for this.
Ahead of Powell’s speech, Bitcoin (BTC) fell below $112,000, reaching its lowest level in 1.5 months. Here’s the price action Bitcoin took during Powell’s speech:
The Fed Chair’s speech at the annual central bankers’ conference coincided with heightened uncertainty surrounding the economy and interest rate policies. While a September interest rate cut was expected, the 25 basis point cut has now fallen from 99% to 75%. While the macro data released has negative implications for interest rate cuts, the probability of leaving rates unchanged is priced in at 24.4%.
*This is not investment advice.
