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Powell's Jackson Hole Speech +2

10:38 22-Aug-25


Powell's speech indicates a shift toward higher risks, both to the labor market and inflation, but says the base case for the latter is that tariffs will cause a one-off rise in prices.  This means that I was mostly wrong about even a faint signal for rate cut for the September 17th decision.  In fact, he reinforces that a neutral rate may be higher than it was last decade.  Going forward, the Fed is reverting its process to acknowledge that its measurements are highly uncertain and chasing moving targets.  Consequently, in contrast to its approach 5 years ago, it will no longer attempt to address shortfalls or overshoots, potentially making damage from one-offs more permanent.  Powell closed by appropriately invoking Volcker, just as I have done.  Despite that danger, the market appears relieved at continuation of the status quo, with indexes completely recouping this week's losses.