The annual Jackson Hole party ended, which may prove to be Jerome Powell’s last major move ahead of the Fed’s September meeting – while the chairman refused to promise a tax cut, the market is convinced that the foundation has been laid.
Powell put forward a special attitude of caution, stressing that the Fed still has jobs and inflation data to digest before mid-September. The message is clear, however: the door to relax is open and the expectation of cutting works firmly.
Nigel Green, CEO of the Global Financial Advisory Group Devere, said Powell “has done what the central bank does best – he keeps the door open,” he added: “The Fed is already behind the curve and the balance of risk is shifting towards faster than earlier times.”
The Fed has not lowered interest rates since December, but the economic signal flashes red. Growth is weak, the labor market is showing early signs of pressure, and the tariffs imposed by President Donald Trump are driving the costs of the entire supply chain.
“Ironically, Trump’s tariff push is designed to project strength and is one of the largest inflationary forces in the economy right now,” Green pointed out.
Lowering tax rates will not remove tariff-driven price pressures, but it can provide relief by keeping credit flow and confidence intact.
The timing of the decision now depends on the economic version in early September. The monthly work report will test whether the hiring momentum can be recovered, while next week’s inflation data will confirm whether the unexpected hot wholesale price in July is outlier.
The market is already shocking: the dollar has been whipped, yields on Treasury bills are falling, and risk-sensitive currencies from the Australian dollar to South Korea react to every prompt of the Fed’s recalibration.
“If the job data is weak, or inflation shows signs of rolling past, then Powell will have all the cover he needs to move,” Green said. “Wait longer risks to tighten the financial situation further – the market won’t be patient forever.”
Wyoming retreats often become a platform for key transfers in the Federal Reserve’s exchanges. In 2010, Ben Bernanke laid the foundation for quantitative easing. In 2022, Powell introduced the “Higher Longer” spell.
This year, his tone was more cautious, but the subtext was correct: the Fed was preparing for change.
If interest rates drop, the possible beneficiaries are already observing. Capital-intensive technology and AI companies will face lower financing costs. Real estate investment trusts and utilities may see a surge in demand when bond yields fall. Small companies that rely heavily on lending will also benefit.
“These companies will drive the next growth cycle,” Green believes. “Investors with early positioning will take up the rise before consensus is reached.”
For families, pictures are mixed together. High-income Americans continue to spend freely, but low- and middle-income groups are tightening their belts. The income season has exposed this division, which underscores why policymakers fear that weaknesses at the bottom will lower the broader economy.
“The Fed can’t target tariffs, but it can target confidence,” Green said. “The cuts in September will allow families and businesses to ensure that central banks are not sleeping on the steering wheel.”
Powell said he is waiting for data, but global peers such as the European Central Bank and the Bank of England are already adjusting their policy stance. The risk of the Fed is that by delaying, it lags behind the curve.
“The window to action is now,” Green concluded. “We expect it to be reduced in September. If Powell waits for the perfect conditions, the Fed will eventually chase events rather than shaping them.”
