What’s your view on US Fed Chair Jerome Powell’s speech at Jackson Hole?

Powell's speech demonstrated that he is navigating the economic seas with a steady hand on the tiller after adopting an anticipated dovish tone and reiterated that the time has come for policy to adjust. The market will, of course, be pleased to have received confirmation on the direction of travel for rate adjustments. However, he kept his cards close to his chest by not providing exact details on the timing or size of rate cuts. There was also further cause for optimism as Powell confirmed that the economy is growing steadily and rising inflation risks have dissipated, with the primary downside risk being isolated to the labour market. The jury is, of course, still out on the exact size of the rate cut in September, with a 25 bps forecast most likely. However, Powell’s speech will have provided a cause for optimism after signalling the first rate cut in four years, is on the horizon.

The Fed pivot that markets have been anticipating for a year is officially here, and now the market is getting what it wants. Financial conditions are about to become extremely loose once again, with no genuine recession fears reflected in market pricing. I’m concerned that Powell took a huge gamble by implying that the war against inflation had been won. The real source of elevated inflation pressures will come from the enormous government deficit spending proposed by both presidential candidates, not the labour market.