Powell Speaks At Jackson Hole

FED Chairman Jerome Powell has issued his comments at Jackson Hole and the equities markets have responded positively. Since Powell’s prepared statement was released to the public, the U.S. indices have pared losses. On the other hand, the USD has faded a bit across the majors. At this point, equities players are breathing a collective sigh of relief that the “mid-cycle adjustment” phrase was omitted from Powell’s scripted speech.

FED Chairman Powell Delivers Address At Jackson Hole

A quick look at Powell’s prepared speech shows the meticulous research that went into the work. Check out the full text here. Let’s cut to the chase and focus on the key quotes:

• “Inflation ran close to our symmetric 2% objective for most of last year, but has been running somewhat below 2% this year.”
• “Low inflation has been the main concern for the past decade. Low inflation seems to be the problem of this era, not high inflation.”
• “I continue to judge overall financial stability risks to be moderate. But, we remain vigilant.”
• “We have much experience addressing typical macroeconomic developments. But, fitting trade policy uncertainty into this framework is a new challenge.”
• “The outlook for the U.S. economy since the start of the year has continued to be a favorable one.”
• “Three factors are weighing on the favorable outlook: slowing global growth, trade policy uncertainty, and muted inflation.”
• “The global growth outlook has been deteriorating since the middle of last year.”

Bottom Line

This was a very cautious speech from Jerome Powell. In the hour since its release, the markets have taken a favorable view of the commentary, led by a reversal in the U.S. indices.

Ultimately, it looks like the FED is committed to cutting rates in order to head-off any long-term economic fallout from the United States/China trade war. Given the concerns Powell has over lagging inflation and global economic growth, it appears that consensus estimates of multiple FED rate cuts by year’s end are spot on.