On 21–23 August, the financial world held their breath as the annual Jackson Hole Symposium unfolded. During the event, 120 policymakers, economists, and central bankers discuss the global economy, which historically affects the markets. This year, the main theme revolved around transitioning labour markets, demography, productivity, and macroeconomic policy, as well as their interaction with fiscal and monetary policies.
The most anticipated speech was the Fed Chairman, Jeremy Powell, one’s—amidst stalled labour growth in July, Trump attacks on the Fed independence, demand for immediate rate cuts, and his calls for the Chairman to resign. Powell addressed existing and emerging risks that stalled the economy and defended the Fed's independence; however, he opened the door for the central bank to finally cut the interest rate in September. Here are his key messages.
● Inflation is still higher than the 2% target, partially driven by tariffs and trade frictions.
● Although the trade war, geopolitical risks, and global slowdown are likely to be temporary dovish factors, the Fed needs to be responsive.
● Slowing job growth and a declining labour market could result in 'unnecessary' unemployment, if policy remains tight.
● The Fed emphasises the dual mandate: price stability and maximum employment—and their attempt to be flexible and balance risks in order not to overreact in either direction.
● They are ready to lower interest rates in case of a weakening labour market.
● When deciding on the interest rates, the Fed is to consider incoming data only, not market expectations and politics.
While Powell didn't explicitly commit to a cut, the markets interpreted his tone as signalling a strong chance of easing during the upcoming Fed meeting on 16–17 September.
‘Powell managed to strike exactly the chord markets were hoping for. Equities surged across the board—the S&P 500 climbed 1.5%, the Nasdaq added 1.7%, and the Dow jumped 2.2% to a fresh record intraday high. On the bond side, the rally was just as strong: two-year Treasury yields fell nearly 10 basis points to 3.69%, while 10-year yields eased to 4.27%. That's a clear vote of confidence that the Fed will move in September. Even European markets echoed the optimism, though more moderately. The tone has shifted—risk appetite is firmly back,' noted Kar Yong Ang, a financial market analyst at Octa Broker.
Despite a vivid, optimistic outlook, the market remains cautious in the long term, with a troubling combination of persistent inflation and sluggish economic growth that may undermine the effectiveness of rate cuts.
'While Powell's dovish tilt ignited market optimism, the caution remains real, especially in the long term. Market overreaction, together with sluggish economic growth and sticky inflation, potentially dulls the impact of rate cuts,' adds Octa Broker's analyst.
The Fed Chairman wasn't the only official sending reassuring market signals. Christine Lagarde, the President of the European Central Bank (ECB), delivered an optimistically cautious message, highlighting the achieved disinflation without the typical heavy labour market damage. She highlighted that the eurozone's economy continues to benefit from an influx of foreign workers, which offsets weaker real wage growth and shorter working hours. To be more detailed, Lagarde stressed that the eurozone labour market remained unexpectedly strong amid aggressive rate hikes and disinflation. Unlike previous cycles, employment expanded while unemployment showed almost no growth. Moreover, inflation fell without a recession, and the 'sacrifice ratio' was remarkably low. In her opinion, immigration, a decrease in energy prices, and wage growth are the key factors for EU stability.
Despite a rather positive agenda, Lagarde warned against potential future shocks or policy missteps. The favourable environment may not persist; hence, the ECB will keep practising a cautious, flexible, and data-driven approach.
Central bankers also agreed on data-related challenges that shrink the reliability of economic information and weaken the foundation of policy decision-making. This undermines real-time assessments and prevents them from addressing evolving economic trends.
Disclaimer: This article does not contain or constitute investment advice or recommendations and does not consider your investment objectives, financial situation, or needs. Any actions taken based on this content are at your sole discretion and risk—Octa does not accept any liability for any resulting losses or consequences.
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