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If you want a straightforward, to-the-point, affirmative statement—don’t ask Fed Chair Jerome Powell.
As per usual, the bespectacled economist used his signature indirect language to set the stage for the central bank’s next move during his annual address in Jackson Hole, Wyoming—but investors still managed to read great news in between the lines.
What Powell said: “With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” What the market heard: Rate cuts are coming.
While he reiterated that tariffs could still pose a risk to stoking inflation, Powell added that the labor market remains strong—all conditions that enable the Fed to “proceed carefully.” He noted that a “reasonable base case” could be that the price increase from tariffs would actually be “short-lived”—or dare we say, transitory (the term that got him into trouble back in 2021). That was interpreted as great news for the market, given a lower risk of inflation justifies lowering borrowing costs.
Since December 2024, the Fed has kept borrowing rates steady at a range of 4.25% to 4.5%. Traders are pricing in a 83% chance the Fed cuts rates in September, up from 75% yesterday.
Stocks soared in response to the speech, while Treasury yields went into freefall.
“It’s no surprise that markets reacted with glee and both stock and bond investors will be happy if prices close this afternoon at the levels they are now trading,” explained Chief Investment Officer for Northlight Asset Management Chris Zaccarelli. “To use the old Fed-analogy, the party isn’t over yet and Jay isn’t ready to take away the (spiked) punch bowl.”
Making a splash in Jackson Hole
Zooming out, this particular address from Powell is a consequential one. It will likely be his last, given President Trump’s not-so-subtle attacks on the Fed’s independence and Powell himself.
Though he didn't mention the president by name, Powell did affirm the importance of the separation between the Fed and politics: “FOMC members will make these decisions, based solely on their assessment of the data and its implications for the economic outlook and the balance of risks,” explained Powell. “We will never deviate from that approach.”
He could have dropped the mic right there.—LB