The much anticipated Jerome Powell Jackson Hole speech on "Challenges for Monetary Policy" (which is never translated live), is finally out, and the first thing that stands out is Powell's comment that the economy is in a “favorable place,” but immediately refers to “significant risks” in a text that according to Bloomberg "ultimately appears to signal a rate cut at the FOMC’s September meeting."
In what appears to be a last minute rewrite of his speech following today's Chinese retaliation, Powell calls attention to an “eventful” three weeks since the July FOMC meeting, highlighting negative developments, including:
- New tariffs on China
- “Further evidence of a global slowdown, notably in Germany in China”
- A sharp downward move of long-term bond rates around the world “to near post-crisis lows”
In a clear attempt to appease Trump, Powell says that “based on our assessment of the implications of these developments, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective."
Of note, Powell has devoted an entire section of his speech to trade uncertainties as a new challenge for monetary policy, which confirms that the more trade war escalates, the greater the Fed response, giving Trump a green light to escalate further.
A notable comment is that according to Powell, there are "no recent precedents to guide any policy response to the current situation."
In his speech, the Fed chair also provides a historical tour of three different post-World-War-Two policy eras and their lessons for the Fed: the Great Inflation, the Great Moderation and the Great Recession, and adds that the Fed has learned how to tame inflation and has substantially improved the safety of the financial system, but is still unsure how to deal with the current era of super-low interest rates.
Of note, there are no explicit reference to a "mid-cycle adjustment" which was seen by many as the biggest hawkish threat, the result being that according to algos the speech is being seen as borderline dovish.
Here are the key highlights:
- *POWELL: `WE WILL ACT AS APPROPRIATE TO SUSTAIN THE EXPANSION'
- *POWELL: ECONOMY IN FAVORABLE PLACE, FACES `SIGNIFICANT RISKS'
- *POWELL SAYS EVENTS SINCE THE JULY FOMC HAVE BEEN `EVENTFUL'
- *POWELL: CAREFULLY WATCHING DEVELOPMENT FOR IMPACT ON U.S.
- *POWELL: MONETARY POLICY HAS NO RULEBOOK FOR INTERNATIONAL TRADE
- *POWELL: WE'VE SEEN FURTHER EVIDENCE OF A GLOBAL SLOWDOWN
- *POWELL CITES BREXIT, HONG KONG, WEAKNESS IN GERMANY AND CHINA
Some more highlights:...
- *Fed's Powell: Fed Will Act as Appropriate to Sustain the Expansion
- *Powell: Three Weeks Since Last FOMC Meeting Have Been 'Eventful'
- *Powell: Fitting Trade Policy Into Risk-Management Framework Is a New Challenge
- *Powell: Fed Faces Heightened Risk of Difficult-to-Escape Periods of Near-Zero Rates
- *Powell: U.S. Economy Has Continued to Perform Well Overall