Jackson Hole 2025: Powell signals a cautious but clear path toward lower rates
Updated:
26 AUG, 2025
By Jose Luis Palmer from RankiaPro Europe
Once again, all eyes were on Federal Reserve Chairman Jerome Powell as he addressed the annual Jackson Hole symposium. This year’s speech confirmed the Fed’s growing inclination to ease monetary policy, striking a balance between lingering inflationary pressures and mounting signs of weakness in the labor market. Powell’s remarks reinforced expectations that the central bank is preparing to resume rate cuts, with September emerging as a pivotal moment. Markets, already primed by the latest FOMC minutes, responded positively to the clarity offered on the likely trajectory of interest rates.
How have leading investment voices interpreted Powell’s message and the Fed’s next moves?
Sensible and well-communicated changes
By Richard Clarida, Global Economic Advisor at PIMCO
The eagerly awaited speech by Federal Reserve Chairman Jerome Powell at the annual Jackson Hole symposium did not disappoint the markets, nor did the presentation of his revised monetary policy framework surprise Fed observers. The central bank appears to be on track to lower short-term interest rates, albeit with a cautious approach. Ultimately, the changes to the monetary policy framework were sensible and well communicated, and underscored the Fed's unwavering commitment to its mandate.
If there is no change, Powell will resume rate cuts
By Eric Muller, Head of Product and Investment Strategy at Munich & Co
Chairman Powell's speech in Jackson Hole provided further clarity on the likely trajectory of US official interest rates in the coming months and reinforces the scenario in which the Fed will resume its cycle of cuts as soon as the September meeting is held, with a baseline scenario of three additional cuts in the following meetings until early 2026.
The description of the economic situation is very similar to that in the recently published July FOMC minutes, with the addition of an important update on the employment situation, after July data showed a significant revision compared to previous months and more visible weakness in employment conditions, affecting both labour demand and supply. Inflationary pressure from tariffs is expected to continue, as these take time to feed through to consumer prices, but their assessment is that this could be a one-off impact. The dynamics of the conflict between deteriorating employment conditions and greater inflation divergence due to tariffs tip the balance of risks towards a resumption of monetary policy easing. The current stance is restrictive and ‘the shift in the balance of risks could justify an adjustment to our stance’. While consumption remained resilient in the first half of the year, the likely erosion of real disposable income suggests that economic momentum will slow, although far from posing a risk of recession.
Unless August employment data drastically reverses the message of weakness sent by May-July data, President Powell is likely to lean towards a cut as early as the 17 September meeting, with possible further cuts at the next three meetings, until early 2026. The shared analysis does not point to a faster trajectory or deeper cuts at this stage. Chairman Powell mentioned that the current federal funds rate is 100 basis points above the neutral level. Therefore, in the absence of further significant disruptions to labour demand, the balance with inflation risk suggests a neutral rate—around 3.25%—as a reasonable target for official interest rate adjustments.
This is a positive development for financial markets, and we expect both equity and credit markets to be supported by this prospect of lower rates in the United States in the short term. The US dollar is likely to give up some of its recent gains.
Fed signals rate cuts amid labour market shifts
By Romain Aumond, Strategist at Natixis IM Solutions
The Jackson Hole monetary policy symposium, organised by the Federal Reserve Bank of Kansas City, concluded on Saturday with several clear and powerful messages. The labour market, demographics and productivity were the central themes chosen for this year’s edition. Markets reacted positively to the opening remarks by Jerome Powell. The Fed Chairman directly addressed the challenges facing the US labour market, highlighting the rebalancing of risks for the institution’s dual mandate: full employment and price stability.
Despite the temporary upward pressure of tariffs on consumer prices, the Federal Reserve is now focusing on the marked slowdown in job creation, paving the way for a cycle of interest rate cuts expected to begin in September. This will allow the Fed to readjust its monetary policy stance, currently viewed as restrictive for the economy. Following Powell’s speech, the S&P 500 closed up by 1.52%. Yields on 2- and 10-year US Treasury bonds fell by 9 and 7 basis points respectively, while the US dollar depreciated by 0.87% against the euro.
The FOMC Chairman also took the opportunity to highlight two structural issues. He reaffirmed the importance of Fed independence in monetary policy decisions, even in the face of growing political pressure from the White House. He emphasised the unusual situation facing the US labour market: slowing job creation accompanied by a declining number of available workers, without significant adjustments in the unemployment rate. Powell also noted that the Phillips curve(the relationship between inflation and unemployment) has entered a new phase. In this regime, full employment can be achieved without significant wage pressure.
The trade and migration policies of the new administration will undoubtedly affect both domestic demand (real income of households) and supply capacity (productive potential). This will generate a new equilibrium that is currently difficult to quantify and will require close Fed monitoring in fulfilling its mission to smooth the economic cycle.
On Saturday, Christine Lagarde (ECB), Andrew Bailey (Bank of England) and Kazuo Ueda (Bank of Japan) participated in a debate on the implications of labour market transitions for monetary policy. Their speeches addressed structural changes in their respective labour markets. Population ageing in these economies clearly affects labour supply. In turn, the number of available workers influences wage dynamics.
Lagarde stressed the importance of immigration for boosting employment growth in the euro area, while Ueda underlined the key role of investment in productive capital in Japan to offset labour shortages in certain sectors. This is seen as the most effective way to counteract the negative effects of an ageing population on economic activity. All agreed that policies aimed at integrating groups with weaker labour market participation (older people, young workers, and women) would be short-term solutions to sustain productive capacity.
