On 21–23 August, the financial world held their breath as
the annual Jackson Hole Symposium unfolded. During the event, 120 policymakers,
economists, and central bankers discuss the global economy, which historically
affects the markets. This year, the main theme revolved around transitioning
labour markets, demography, productivity, and macroeconomic policy, as well as
their interaction with fiscal and monetary policies.
The most anticipated speech was the Fed Chairman,
Jeremy Powell, one’s—amidst stalled labour growth
in July, Trump attacks on the Fed independence, demand for immediate rate cuts,
and his calls for the Chairman to resign. Powell addressed existing and
emerging risks that stalled the economy and defended the Fed’s independence;
however, he opened the door for the central bank to finally cut the interest
rate in September. Here are his key messages.
●
Inflation is still higher than the 2% target, partially driven by
tariffs and trade frictions.
●
Although the trade war, geopolitical risks, and global slowdown are
likely to be temporary dovish factors, the Fed needs to be responsive.
●
Slowing job growth and a declining labour market could result in
‘unnecessary’ unemployment, if policy remains tight.
●
The Fed emphasises the dual mandate: price stability and maximum
employment—and their attempt to be flexible and balance risks in order not to
overreact in either direction.
●
They are ready to lower interest rates in case of a weakening labour
market.
● When deciding on the interest rates, the
Fed is to consider incoming data only, not market expectations and politics.
While Powell didn’t explicitly commit to
a cut, the markets interpreted his tone as signalling a strong chance of easing
during the upcoming Fed meeting on 16–17 September.
‘Powell managed to strike exactly the chord markets were hoping for.
Equities surged across the board—the S&P 500 climbed 1.5%, the Nasdaq added
1.7%, and the Dow jumped 2.2% to a fresh record intraday high. On the bond
side, the rally was just as strong: two-year Treasury yields fell nearly 10
basis points to 3.69%, while 10-year yields eased to 4.27%. That’s a clear vote
of confidence that the Fed will move in September. Even European markets echoed
the optimism, though more moderately. The tone has shifted—risk appetite is
firmly back,’ noted Kar Yong Ang, a financial market analyst at Octa Broker.
Despite a vivid, optimistic outlook, the
market remains cautious in the long term, with a troubling combination of
persistent inflation and sluggish economic growth that may undermine the
effectiveness of rate cuts.
‘While Powell’s dovish tilt ignited market optimism, the caution remains
real, especially in the long term. Market overreaction, together with sluggish
economic growth and sticky inflation, potentially dulls the impact of rate
cuts,’ adds Octa Broker’s analyst.
The Fed Chairman wasn’t the only official
sending reassuring market signals. Christine Lagarde, the President of the European Central Bank (ECB),
delivered an optimistically cautious message, highlighting the achieved
disinflation without the typical heavy labour market damage. She highlighted
that the eurozone’s economy continues to benefit from an influx of foreign
workers, which offsets weaker real wage growth and shorter working hours. To be
more detailed, Lagarde stressed that the eurozone labour market remained
unexpectedly strong amid aggressive rate hikes and disinflation. Unlike
previous cycles, employment expanded while unemployment showed almost no
growth. Moreover, inflation fell without a recession, and the ‘sacrifice ratio’
was remarkably low. In her opinion, immigration, a decrease in energy prices,
and wage growth are the key factors for EU stability.
Despite a rather positive agenda, Lagarde
warned against potential future shocks or policy missteps. The favourable
environment may not persist; hence, the ECB will keep practising a cautious,
flexible, and data-driven approach.
Central bankers also agreed on
data-related challenges that shrink the reliability of economic information and
weaken the foundation of policy decision-making. This undermines real-time
assessments and prevents them from addressing evolving economic trends.
Disclaimer: This article does not
contain or constitute investment advice or recommendations and does not
consider your investment objectives, financial situation, or needs. Any actions
taken based on this content are at your sole discretion and risk—Octa does not
accept any liability for any resulting losses or consequences.
About Octa
Octa is an
international broker that has been providing online trading services worldwide
since 2011. It offers commission-free access to financial markets and various
services used by clients from 180 countries who have opened more than 61
million trading accounts. To help its clients reach their investment goals,
Octa offers free educational webinars, articles, and analytical tools.
The company
is involved in a comprehensive network of charitable and humanitarian
initiatives, including improving educational infrastructure and funding
short-notice relief projects to support local communities.
Since its
foundation, Octa has won more than 100 awards, including the ‘Most Reliable
Broker Global 2024’ award from Global Forex Awards and the ‘Best Mobile Trading
Platform 2024’ award from Global Brand Magazine.
