As expected, Jerome Powell opened the door to a rate cut at the September FOMC meeting during his Jackson Hole remarks on Friday.
In a somewhat torturous attempt to reconcile his standard assessment of the US labor market with a narrative that justifies the rate cuts he knows he has to deliver beginning next month, Powell described “a curious kind of balance” brought about by a simultaneous slowing in “both the supply of and demand for workers.”
Downside risks to employment “are rising” and can “materialize quickly,” Powell remarked, in language it’s fair to call moderately dovish, certainly by comparison to what markets are accustomed to hearing from the Chair in 2025.
And yet, Powell’s address was undeniably obstinate in places. His rhetoric on tariffs was more or less unchanged. “The effects of tariffs on consumer prices are now clearly visible [and] we expect those effects to accumulate over coming months,” he said.
Although he called it “a reasonable base case” that tariff price effects will prove “relatively short lived,” he delivered his customary warning: “It is also possible, however, that the upward pressure on prices from tariffs could spur a more lasting inflation dynamic.” Moreover, he cautioned that the Fed “cannot take the stability of inflation expectations for granted.”
In his summary paragraph, Powell said the Fed’s goals are in tension: Inflation risks are to the upside, risks to the labor market to the downside. The funds rate, he reminded the world, is “100bps closer to neutral than it was a year ago,” and a stable unemployment rate affords the Fed the luxury of “proceeding carefully.”
If he’d left it there, one might’ve concluded Powell isn’t giving a single inch of ground in his standoff with Donald Trump. But he didn’t leave it there. He added one final sentence which could only be read as a begrudging acknowledgment of the rather harrowing political environment.
“Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell said.
As he spoke in Wyoming, Trump told reporters in DC that Lisa Cook has two choices: Resign or be fired.
Cognitive dissonance at work. Do not try this at home with your spouse.
As to Lisa Cook, one must keep in mind Trump is a White Supremacist.
And misogynist – eye candy, baby mamas and lap dogs.
… and a convicted (ok, technically civil suit loser) serial mortgage fraudster
Anyone else read this and picture alarm klaxons going off?
Run it hot until it explodes. Then make the tax payers clean it up. Again. For some reason I’ve been thinking of Greenspan, Summers and Rubin believing the Chicago School bit about markets regulating themselves in front of their easy money firehose. I remember actually reading the book “Maestro”.
Then we had the Bernanke-Yellen firehose of liquidity.
I pretty much expect the AI bubble to continue inflating, but I don’t expect it to last 5 years like the dotcom, since AI will eat the consumer economy alive and shit wealth for the citizens of Billionaire. I suspect the 99.9% may endure a long recession. But for now better ride the rocket. Recessions and stagflations are much easier if you’re rich and live within your means.