To The Moon

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Markets have staged a sharp rebound in August, powered by renewed hopes that the Federal Reserve is on the verge of pivoting toward monetary easing. The conversation shifted dramatically on August 13 when BlackRock’s Global Chief Investment Officer suggested that inflation had come in lower than many had expected, leaving the Fed room to begin cutting rates. He even floated the idea that a 50 basis-point cut in September could be justified.

With equities climbing, bond yields retreating, and investors betting heavily on policy easing, all eyes now turn to Federal Reserve Chair Jerome Powell’s upcoming speech at the Jackson Hole Economic Symposium. Scheduled for Friday, the remarks may provide the clearest roadmap yet on whether the central bank is ready to cut borrowing costs at its September meeting.

The question looming over Wall Street is not only whether Powell will endorse rate cuts, but whether those cuts can sustain the “V-shape” rebound we are witnessing—or if this is just another short-lived rally in a volatile cycle.

Why Jackson Hole Matters: A Stage for Fed Pivots

The Jackson Hole Economic Policy Symposium, hosted annually by the Kansas City Fed, has become the single most important platform for shaping global monetary policy expectations. Unlike routine FOMC press conferences, which often stick to a script, Jackson Hole speeches frequently deliver broader reflections on strategy and future direction.

History offers several examples of how impactful this gathering has been:

• 2008 (Bernanke): Fed Chair Ben Bernanke hinted at extraordinary policy measures just before the financial crisis escalated. This helped shape the groundwork for quantitative easing.

• 2010 (Bernanke): He used Jackson Hole to signal QE2, sparking a powerful rally in risk assets.

• 2019 (Powell): Powell’s comments on “sustaining the expansion” reinforced the Fed’s dovish pivot after a year of tightening, calming markets during the U.S.-China trade war.

• 2020 (Powell): He unveiled a major policy framework shift—average inflation targeting—cementing the Fed’s willingness to tolerate higher inflation before raising rates.

This track record is why investors hang on every word spoken at Jackson Hole. Powell does not need to announce a rate cut explicitly; even a shift in tone could reset expectations across global markets.

Inflation Cools, But Growth Concerns Mount

Recent data releases have given the Fed breathing room. Headline CPI has cooled meaningfully, with shelter inflation finally starting to ease, while wage growth has moderated from post-pandemic highs. The Fed’s preferred gauge—core PCE inflation—appears to be converging toward the 2% target faster than expected.

But there’s another side to the story. Growth indicators are flashing yellow. Retail sales have softened, the ISM manufacturing index remains in contraction, and job openings are drifting lower. While unemployment remains historically low, momentum in the labor market has weakened.

This mix—waning inflation pressures alongside slowing growth—is exactly the environment in which central banks historically shift toward easing. Yet, Powell faces a delicate balancing act:

• Cut too quickly, and the Fed risks re-igniting inflationary pressures.

• Cut too late, and the Fed risks tipping the economy into a deeper slowdown.

What to Watch in Powell’s Speech

Powell’s Jackson Hole remarks will likely revolve around three themes:

1. The Inflation Narrative

Markets want to hear whether Powell believes inflationary pressures are now fully under control. If he acknowledges that progress has been faster than anticipated, that could open the door to imminent cuts.

2. Timing of Rate Cuts

The September FOMC meeting is in focus. Powell’s wording could either confirm or cast doubt on whether the committee is ready to move. The difference between “data-dependent” caution and “confidence inflation is on target” could swing markets dramatically.

3. The Magnitude of Easing

The wild card is the size of the cut. A 25 bps move is widely expected and arguably priced in. But any openness to a 50 bps cut could turbocharge risk appetite. Conversely, if Powell explicitly rules it out, equities could retrace.

Market Reactions: Equities, Bonds, and Currencies

Equities: A Relief Rally in Progress

The stock market has rebounded sharply this month, particularly in rate-sensitive sectors. Technology and consumer discretionary names, which thrive on cheaper borrowing costs, have led the charge. Real estate investment trusts (REITs) and high-yield dividend payers have also benefited from lower yields.

If Powell leans dovish, this rally could extend further. But investors must be mindful of positioning: with sentiment leaning heavily toward cuts, any hawkish surprise could trigger profit-taking.

Bonds: Yields on the Move

Treasury yields have already retreated on expectations of easing. A dovish Powell could push long-end yields even lower, steepening the curve in ways that support credit markets. However, if Powell strikes a cautious tone, bond markets may unwind some of their recent moves.

The Dollar: A Key Global Spillover

The U.S. dollar has weakened in recent weeks on bets that U.S. rates will fall faster than global peers. A dovish signal could extend this trend, supporting commodities and emerging-market assets. But a hawkish tone might provide a floor for the greenback, putting renewed pressure on global liquidity.

Will a September Cut Sustain the Rally?

The near-term market response to a September cut is clear: equities rally, yields fall, and risk appetite improves. But the deeper question is whether rate cuts represent a policy success—or a warning sign.

• Bullish View: Cuts signal confidence that inflation is contained, paving the way for a soft landing. This is the scenario underpinning the current V-shape recovery.

• Bearish View: Cuts reflect the Fed’s concern about an economic slowdown. If growth deteriorates further, monetary easing may not be enough to offset recession fears.

History suggests that the first cut in a cycle is often met with optimism but later re-evaluated as growth dynamics evolve. In 2001 and 2008, for example, initial rate cuts could not prevent equity markets from sliding deeper into bear territory. In contrast, the 1995 and 2019 cycles saw rate cuts extend economic expansions.

The question is: which playbook will 2025 follow?

Sector-by-Sector Impact

Different parts of the market will respond in unique ways to Powell’s guidance:

• Technology: Highly sensitive to discount rates. A dovish Powell could ignite another leg in the AI-driven rally.

• Financials: Banks face margin pressure when rates fall, but credit quality improves if cuts stabilize growth.

• Energy: A weaker dollar and stronger global demand outlook could support oil and commodities.

• Consumer Staples: Defensive positioning may underperform if risk appetite accelerates.

• Real Estate: Lower yields are a boon to REITs, though fundamentals in office and commercial property remain challenging.

Global Implications

Jackson Hole speeches resonate far beyond U.S. borders. A dovish Powell would:

• Support emerging markets by reducing dollar pressure.

• Ease funding conditions for global corporates.

• Provide relief to central banks in Europe and Asia that have been reluctant to cut ahead of the Fed.

But a cautious Powell would do the opposite, reinforcing U.S. dollar strength and forcing global central banks to remain defensive.

Key Takeaways for Investors

1. Powell’s tone is the market’s compass. Even small shifts in phrasing will shape September expectations.

2. The size of the cut matters. A 25 bps move is consensus; a 50 bps cut would represent a shock.

3. Equities are priced for good news. A dovish Powell extends the rally; hesitation risks a pullback.

4. The dollar’s direction is crucial. A weaker dollar supports risk assets globally; strength could tighten liquidity.

5. The bigger picture remains uncertain. Rate cuts help, but whether they deliver a soft landing depends on growth resilience.

Conclusion: A Pivotal Moment

The Jackson Hole symposium has historically served as a stage for pivotal shifts in U.S. monetary policy. This year, Powell arrives at a delicate crossroads: inflation has cooled faster than expected, but growth signals are weakening. The Fed must decide whether to begin cutting rates in September, and by how much.

Markets are already leaning heavily dovish. If Powell validates those expectations, the V-shape rebound in risk assets may gather momentum. But if he pushes back, volatility could return quickly, reminding investors that the Fed’s path is never linear.

For investors, the message is clear: near-term opportunities exist in rate-sensitive sectors, but long-term caution remains warranted. Rate cuts may extend the cycle, but they are not a cure-all. The balance between easing financial conditions and preserving credibility will determine whether Powell’s Jackson Hole speech is remembered as the catalyst for a lasting recovery—or just another chapter in a turbulent market cycle.