We know what you did last summer (pivot to rate cuts)… But not so fast!
- Powell Speech: We view the recent FOMC minutes as being stale, especially post the shocking (but not to us) NFP revisions. Like last year, we expect chair Powell to pivot at Jackson Hole and signal that a rate cut is next. Though unlike last summer, higher inflation risks and worries over un-anchoring of inflation expectations (due to pass-through of tariffs) suggest that the Fed will not turn super dovish at this point (e.g. the hurdle for a 50bp cut is high). With a few data points ahead in September, likely key determinants, we doubt Powell wants to pre-commit. So, if they cut 25bps in September, he will stress it’s not the start of a fast and larger sized easing campaign.
- Market Implications: The partial unwind of the frontend rates rally (taking rate cut expectations well under 100% for September) and risk-off in equities has the markets in better balance before Jackson Hole. There is room for disappointment if Powell fails to pivot from his recent hawkish stance. If it comes across that a September cut, even as an “insurance ease,” is not in the cards, that is a major risk-off. Yet we believe chair Powell will avoid trying to move markets that much and finds a way to suggest rates cuts towards neutral, are not predetermined, but still coming.
- Labor in Focus: The 2025 Economic Policy Symposium at Jackson Hole is focused on “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy.“ The nature of work has been evolving and driven by various competing forces. We explore some of these concepts (i.e. accounting for an aging population as well as potential impact of AI) in this report.
Please see the link for the full write-up with charts…
