Powell didn't say a lot in Jackson Hole speech, but it was enough for markets
Federal Reserve Chair Jerome Powell’s speech at Jackson Hole showed only a mildly dovish tone toward monetary policy, but that was all markets needed to head off to the races. Stocks surged and Treasury yields plunged following the presentation at the Fed’s annual symposium. Market pricing shifted back to a near-certainty that there will be a September rate cut, and speculation swirled that at least one more would follow this year. All that came from Powell simply stating that current and expected conditions “may warrant adjusting our policy stance” after the Fed spent this entire year on hold, despite hectoring from President Donald Trump for lower rates. “Fed Chair Powell is going out with a bang as he delivers what the President has been arguing for,” wrote Chris Rupkey, chief economist at Fwdbonds. “More rates are certain to come as … Powell caved on rates and markets are roaring their approval. The king is dead. Long live the next king,” he said. The chair’s remarks come at what almost certainly was his final keynote at the Wyoming symposium. With policy in flux, Powell entertained multiple scenarios, the most likely being a temporary pass-through from tariffs to inflation while downside risks build for the labor market. In investors’ eyes, it was enough to signal that Powell will lead the rate-setting Federal Open Market Committee to ease policy during his final nine months as its leader. “This was not just tipping his hat for a Sept. 17 rate cut. I think this was actually a move towards suggesting that we’re going to be in for a sequence of rate cuts ahead,” David Rosenberg, head of Rosenberg Research, said on CNBC. “His speech accurately described the tension between the dual parts of the Fed’s mandate but, with the clear emphasis on the downside risks for employment, the remarks clearly make the case for a careful, cautious resumption of rate cuts,” added Seema Shah, chief global strategist at Principal Asset Management. Markets are still not looking for anything drastic, despite calls in some quarters for a half percentage point cut from the current 4.25% to 4.50% policy rate in September. Futures currently are pricing no chance of that happening though the odds for a quarter-point move rose to 89% after Powell’s speech from about 75% earlier, according to the CME Group’s FedWatch gauge. The probability for another cut in October stood at about 46%, while December was a near-certainty for a second cut and about a 40% chance that the year would end with three reductions. Economist Paul McCulley told CNBC that it would take a bad August nonfarm payrolls report, possibly indicating an outright loss of jobs, to push the FOMC to a half point. But he said Powell made it clear that the labor market is now a bigger focus than the fight against inflation. “The caveat that Mr. Powell laid out very clearly is that the bias is to reacting forcibly to unexpected weakness in the labor market,” said McCulley, a former Pimco managing director. “They are intensely focused on [not wanting] the labor market to weaken from here.”
