The annual Jackson Hole gathering closed with what may prove to be Jerome Powell’s last major act before the Federal Reserve’s September meeting — and while the chair resisted committing to a rate cut, markets are convinced the groundwork has been laid.
Powell struck a characteristically cautious note, stressing that the Fed still has jobs and inflation data to digest before mid-September. Yet the message was clear: the door to easing is open, and expectations for a cut are firmly in play.
Nigel Green, chief executive of global financial advisory group deVere, said Powell had “done what central bankers do best — he kept the door open,” adding: “The Fed is already behind the curve, and the balance of risks is shifting toward easing sooner rather than later.”
The Fed has not reduced interest rates since December, but economic signals are flashing red. Growth is softening, the labour market is showing early signs of stress, and tariffs imposed by President Donald Trump are pushing up costs throughout supply chains.
“The irony is that Trump’s tariff push, designed to project strength, is one of the biggest inflationary forces in the economy right now,” Green noted.
While a rate cut will not undo tariff-driven price pressures, it could provide relief by keeping credit flowing and confidence intact.
The timing of the decision now hinges on early September’s economic releases. The monthly jobs report will test whether hiring momentum can recover, while inflation data the following week will confirm whether July’s unexpectedly hot wholesale prices were an outlier.
Markets are already jittery: the dollar has whipsawed, Treasury yields are sliding, and risk-sensitive currencies from the Australian dollar to the Korean won are reacting to every hint of Fed recalibration.
“If the jobs data are weak, or if inflation shows signs of rolling over, Powell will have all the cover he needs to move,” Green said. “Waiting longer risks tightening financial conditions further — markets are not patient forever.”
The Wyoming retreat has often served as a platform for pivotal shifts in Fed communication. In 2010, Ben Bernanke laid the groundwork for quantitative easing. In 2022, Powell introduced the “higher for longer” mantra.
This year, his tone was more guarded but the subtext unmistakeable: the Fed is preparing markets for change.
If rates fall, the likely beneficiaries are already in view. Capital-intensive tech and AI firms would face lower financing costs. Real estate investment trusts and utilities, which thrive when bond yields fall, could see demand surge. Small-cap companies, heavily reliant on borrowing, would also benefit.
“These are the companies that will drive the next cycle of growth,” Green argued. “Investors who position early will capture the upside before it becomes consensus.”
For households, the picture is mixed. Higher-income Americans continue to spend freely, but middle- and lower-income groups are tightening their belts. Earnings season has exposed this divergence, underscoring why policymakers fear that weakness at the bottom could drag the broader economy down.
“The Fed cannot target tariffs, but it can target confidence,” Green said. “A cut in September would reassure households and businesses that the central bank is not asleep at the wheel.”
Powell has signalled he is waiting on the data, but global peers such as the European Central Bank and the Bank of England are already adjusting their policy stances. The risk for the Fed is that by delaying, it falls behind the curve.
“The window for action is now,” Green concluded. “We expect a cut in September. If Powell waits for perfect conditions, the Fed will end up chasing events instead of shaping them.”
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Fed rate cut looms after Powell’s Jackson Hole speech