Download This Week’s Full Edition!

At the Fed’s Jackson Hole symposium, Jerome Powell shifted focus toward labor market risks, downplayed tariff-driven inflation, and hinted at potential September rate cuts, sparking a strong market rally.

What Caught Our Eyes This Week

Dove Hunting in Jackson Hole

Sitting inside the longest gap of the year between FOMC meetings, the Kansas City Fed’s Jackson Hole Economic Policy Symposium often serves as a venue for the Fed chair to send a message on monetary policy if needed. The last FOMC meeting in July took place a few days before the weak employment report that featured massive downward revisions to prior months. Since then, we also had inflation data that shows that tariffs are beginning to creep their way into goods prices but also that services inflation (outside of shelter) is not dead and buried just yet.

Recent “Fedspeak” and FOMC minutes reveal a committee divided on which side of its dual mandate demands more attention. Even still, Jerome Powell’s speech marked a change of tune. He focused first on downside risks to employment before acknowledging tariff-induced inflation but embraced a “one-time shift” mentality to price impacts, a nod to the Christopher Waller camp that endorses looking past tariff inflation as temporary, or dare we say, transitory. He wrapped up the short-term policy portion of his speech by noting that “the shifting balance of risks may warrant adjusting our policy stance,” which was all markets needed to hear. The Russell 2000 Index of small cap stocks (particularly sensitive to policy rates given its higher reliance on floating-rate borrowing) had its second-best day of the year (behind only the April 9 “pause” of the Liberation Day tariffs). There are still a handful of data points to be released before the September FOMC meeting. However, barring any nasty inflation surprises, the bigger question will be whether September brings about a “hawkish cut” that is telegraphed as potentially “one and done” or the start of a series of cuts as policy adjusts back to its perceived neutral level.

Market-Implied Probabilities for Number of Rate Cuts by the End of 2025

CHART OF THE WEEK: Source: Cerity Partners, Fed funds futures as of 8/22/2025, FactSet.

Past performance does not guarantee future results.

Please read important disclosures here.