Powell’s Pivot: Jackson Hole Marks a Turning Point

A Dovish Shift

Last week’s Jackson Hole Economic Symposium may go down as one of the most consequential in recent memory. In what was likely his final keynote as Federal Reserve Chair, Jerome Powell delivered a speech that marked a clear pivot in policy tone, one that markets interpreted as the beginning of a new rate-cutting cycle. Powell acknowledged that the Fed’s policy rate remains in restrictive territory and that the “baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” This was the first time in nearly a year that Powell openly entertained the idea of easing policy, after months of holding firm despite political pressure and persistent inflation concerns.

What made this speech so impactful wasn’t just the words-it was the context. Powell has been notably unresponsive to dovish calls for most of 2024 and 2025, maintaining a hawkish posture even as inflation cooled and labor market data softened. But at Jackson Hole, he shifted focus from inflation to employment, stating that “downside risks to employment have increased.” This marked a subtle, but significant change in the Fed’s reaction function, suggesting that the central bank is now more concerned about the potential for labor market deterioration than lingering price pressures.

Powell also addressed structural headwinds, including tariffs, which he said are reshaping the global trading system, while emphasizing that tariff effects are likely to be short-lived, describing them as a “one-time shift in the price level,” rather than a persistent inflationary threat, a view we have been supportive of for months. This acknowledgment helps clarify the Fed’s inflation outlook and reinforces the idea that recent price increases tied to trade disruptions may not warrant prolonged policy tightening.

The market response was immediate and emphatic. The Dow Jones rose 1.89%, the S&P 500 gained 1.52%, and the Nasdaq climbed 1.88%. Bond yields fell sharply, with the 2-year down 10.4 basis points and the 10-year down 7.4 basis points. Rate-sensitive sectors like REITs and Utilities led the rally, while Tech stocks also surged on expectations of lower discount rates.

The CME FedWatch tool now places the odds of a September rate cut at 89%, with additional cuts expected before year-end. Investors interpreted Powell’s remarks not just as a signal of near-term easing, but as the beginning of a broader shift in monetary policy that could support risk assets throughout the remainder of the year.

Chart 1: Target Rate Probabilities for September Meeting^[1]

Consumer Data Supporting Growth

For quite some time, we have emphasized the resounding resilience of the consumer and their ability to brush off price increases and any tariff impacts, and recent data has continued to emphasize that stance.

Chase credit card spending data shows August total spend up 4.9% year-over-year, accelerating from July’s 4.2%, with discretionary spending up 6.4% month-to-date compared to just 2.4% for non-discretionary categories. This divergence underscores the strength of consumer confidence and the willingness to spend on lifestyle and leisure, even in a higher-rate environment. Gen Z and Millennials are driving the surge with spending up 7.9% month-to-date, far outpacing Gen X at 2.2% and Baby Boomers at 1.8%. This generational shift in spending power is becoming increasingly influential, especially as younger cohorts enter their prime earning and consumption years.

Consumer sentiment remains robust. The August Consumer Confidence Index rose to 97.4, up from 96.3, reflecting continued optimism among households. This uptick is particularly notable given the backdrop of elevated interest rates and lingering geopolitical uncertainty. It suggests that consumers are looking past short-term headwinds and remain focused on long-term financial stability and opportunity.

Housing data released yesterday was soft, as expected, but there’s a silver lining: new home sales are now above 2018 levels. That’s a meaningful benchmark, especially considering the rate environment and demographic tailwinds. With the Fed poised to cut rates and mortgage costs likely to decline, the housing market could be set for a rebound. Lower borrowing costs, combined with strong millennial demand and improving supply dynamics, may unlock a new wave of housing activity heading into the fall. This could have positive spillover effects across related sectors, sending markets to new levels.

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Sources:

^[1] CME Group, As of August 2025.

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