Jackson Hole Sparks Dovish Pivot, But Caution Remains

At the Jackson Hole Symposium, Fed Chair Jerome Powell signaled a shift toward potential rate cuts, suggesting that the balance of risks now favors a more accommodative stance in the months ahead. He cited cooling labor markets and sticky inflation, emphasizing that policy would remain data-dependent.

Key Takeaways from Powell’s Remarks

Over the Powell’s remark, he acknowledged increasing downside risks to the labor market amid persistent inflation. Powell also suggested that such conditions could justify a policy shift from restrictive to accommodative.

However, he stopped short of committing to immediate action, emphasizing that all decisions remain data-dependent, leaving the market remain cautious on policy path outlook.

The Fed also announced a formal shift away from the prior “average inflation targeting” model to a revised flexible inflation-targeting framework. This new approach removes the pre-pandemic focus on ultra-low interest rates and better aligns with post-pandemic economic realities.

Powell reaffirmed the Fed’s commitment to independence amid mounting political pressure. In particular, he addressed controversies involving President Trump’s criticism of Fed officials, including a public campaign against Governor Lisa Cook—which has raised concerns about central bank autonomy.

Market Reaction — Dovish Pivot, Risk Appetite Rises

• Equities rallied sharply—S&P 500 up ~1.5%, Nasdaq nearly 2%, and Dow pushing to fresh highs.
• Treasury yields plunged: The 2-year yield dipped to roughly 3.69%, its lowest level since August 13.
• U.S. dollar weakened significantly following Powell’s comments, as markets priced in an 80–90% chance of a September rate cut.

Powell’s remarks carefully navigated between acknowledging sticky inflation—particularly from tariff pressures—and softening labor conditions. He emphasized that if downside risks materialize, policy should adapt.

“We see a more dovish tilt in the Powell’s remarks, but the cautious tone still remain”, said Shawn Lee, Senior Analyst at Ultima Markets.

Despite the dovish pivot, upcoming data—especially the September employment report and PCE inflation readings—remain critical catalysts that could either confirm or stall easing expectations.

The symposium’s tone was seemingly dampened by political interference, raising questions about the Fed’s future credibility in its policymaking. “Hence, we should still be cautious on the dovish pivot,” Shawn added.

What’s Next?

• The Fed has essentially opened the door to rate cuts starting in September but remains data-dependent on the broader policy path.
• The Fed appears to be shifting from average inflation targeting toward a more flexible framework, meaning it may not wait for inflation to edge precisely back to 2% before cutting rates—as long as price pressures remain contained.
• Key risks to monitor include labor market data, inflation trends, political interference, and questions around Fed independence.

Disclaimer

Comments, news, research, analysis, price, and all information contained in the article only serve as general information for readers and do not suggest any advice. Ultima Markets has taken reasonable measures to provide up-to-date information, but cannot guarantee accuracy, and may modify without notice. Ultima Markets will not be responsible for any loss incurred due to the application of the information provided.