By Annie 
The last central banker gathered in the wild lands of Wyoming has rather perfectly established the dilemma that faces the most influential politicians in the financial markets and the sorceress made its way.
Bright and Early Local now in Jackson Hole, the president of the Federal Reserve Jay Powell has risen to the podium for deliver What will almost certainly be his last speech in this role in the annual set-pece of the Fed.
It was, as we would expect from a serious speech by a serious person, a strictly realized and weighted deal: a careful articulation of the challenges that the Fed is facing: a falling market that requires cuts to interest rates but a dead threat of a pick-up in the inflation that the central bank dedicate themselves to tolerate. This will be a difficult situation for his successor, whoever it isTo navigate, when Powell leaves his current role next May.
For now, however, the Fed chair is clearly more convinced on the side of the occupation of this equation, indicating that it may be necessary “adjustment” – a great suggestion that the central bank is ready to restart interest rates next month
This was a surprise for investors, who apparently expected a Snoozefest. The dollar decreased abruptly, the government bonds have increased in price and the actions were collected at the end of a difficult week while the markets have cooked in those new expectations. A cut next month is now seen as a deal made, with probable ribs also in the following two meetings.
“We interpret the market reaction as a surprise that Powell has so clearly opened the door to cut the cuts instead of sticking to the maximum dependence message on data from [its] Meeting of July “, wrote Richard Clarida, a former Fed official and now councilor at the Pimco bond investment company.
This position is rather cute ironic; The President of the United States Donald Trump slammed the drum for cuts at interest rates for months. Powell seems unlikely that provides those cuts on the replaced staircase that Trump has been demanding. “The Jumbo cuts bar seems rather high,” as Barclays analysts said. But now it seems likely that it will deliver something.
Furthermore, it is not risk without risk. If the employment data for August resume from its summer break, which we will not know until the first week of September, the Fed will find itself in the embarrassing point to cut interest rates in a decent labor market with inflation still above the objective. “The Fed would risk a political error if he cuts rates,” he warned the analysts of the Bank of America.
However, the real drama was far from Powell’s podium. Immediately after talking, Trump again plighted the question of the Fed Official Lisa Cook. Wearing a red cap with the brand with the words “Trump was right on everything” that flowed on his forehead, he declared his intention to shoot cook if he does not resign for the accusations of irregularities in his mortgage questions, which he said it will not be “bullying“In doing.
Here’s where everything becomes complicated. Yes, Powell’s Declaration of Friday He had faded. It is simultaneously attentive to the risk of accelerating inflation – something that has promised to face “as What May”. But it is also alive for the risk that cracks in the labor market can quickly exhaust control. This is a standard rate of the central bankers and rarely fall hard in one direction or the other, outside the crises in full rule.
But we will miss everyone this shade when it has disappeared. Trump did not make any secret of his animosity towards Powell, who described as a “number” for not having restarted the cuts at aggressive rates much earlier.
The Fed is supported by structures that protect its independence, but anyone who doubts the desire and will of Trump to bend it towards his will is making fun of themselves, as we have already seen with his oustrokery of the head of the Bureau of Labor Statistics and his appointment, you guessed, you guessed, a loyalist To replace it.
Trump has already appointed a temporary role at the Fed a consultant, Stephen Miran, who has written On the benefits of giving the president the ability to lay off officials of the central bank at will, presumably in the name of the democratization of the institution.
This time next year, the establishment of the Fed will almost certainly seem quite different, most likely with a chair much more suitable for Trump at the helm. Investors will have to decide how to read smoke signals from Fed communications at that point. Are the dissidents from the president on the votes for defining the rates would be a good thing? A reassurance that the Committee for the definition of rates remains a house of different items? Or would it be a sign that the chair is drifting from the pack and are you trying to take a policy in reckless directions?
All this is hypothetical for now. But the market already shows signs of discomfort. The last few weeks have brought stubborn weakness In prices of long-term government bonds compared to other government debts of a much shorter maturity of a sign that investors fear that the central bankers will be under pressure to maintain unduly low interest rates to help retain the cost of the sumptuous loan.
Luck is blowing by the Trump road, as often does. Loan costs are likely to be downhill without him who force them openly. But the meetings of Jackson Hole from 2026 and beyond they may seem considerably different events compared to what the markets are used to.