Powell’s Jackson Hole Speech Signals Cautious Stance on Rates Amid Inflation-Labor Market Crosscurrents

Federal Reserve Chair Jerome Powell struck a deliberately measured tone at the Jackson Hole symposium, balancing persistent inflation risks against a cooling labor market. The July PCE inflation readings of 2.6% headline and 2.9% core—driven by visible tariff effects and goods price reversals—now tilt near-term risks upward for prices and downward for employment.

Payroll growth has slowed sharply to 35,000 monthly jobs from 168,000 in 2024, while unemployment holds at 4.2%. Powell framed this as a "curious kind of balance," noting softer immigration and labor force dynamics mask underlying fragility. The Fed abandoned average inflation targeting, reverting to flexible 2% goals with explicit tolerance for above-maximum employment—provided price stability isn’t compromised.

Political timing looms large. With Powell’s term ending in 2026, the speech implicitly sets the stage for a potential successor less inclined toward caution. Market participants parsing the subtext find fewer signals for rapid easing, reinforcing defensive positioning in risk assets.