Market Wire: Powell Adds to Dollar Selling With Increased Emphasis on Employment Risks

In this morning’s opening comments at the Jackson Hole Economic Symposium, Federal Reserve chair Jerome Powell avoided clearly telegraphing an accelerated easing cadence in months ahead, but noted growing concern about job market risks, helping ratify market expectations for a rapid easing cadence in the months ahead. In a widely-anticipated acknowledgement of a more balanced outlook, he said officials would do “everything we can to support a strong labour market as we make further progress toward price stability”, warning that “the upside risks to inflation have diminished, and the downside risks to employment have increased”.

“The labour market is no longer overheated,” he said, and is less tight than before the pandemic”. “My confidence has grown that inflation is back on a sustainable path to two percent”.

“We do not seek or welcome further cooling in labour market conditions,” implying that “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks”.

Powell’s comments come after minutes from the Fed’s July meeting showed a “vast majority” of officials expecting to begin cutting rates in September. A number of officials have pivoted in recent weeks, with the Atlanta Fed’s Raphael Bostic - considered a relative hawk on the Federal Open Market Committee - earlier telling CNBC “It may be appropriate to pull forward our first move,” saying more than one cut would be “in play” through the remainder of the year.

The dollar is down incrementally, Treasury yields are slightly lower on the front end, and equity indices are advancing as traders incrementally lower the odds on a plus-sized rate cut at the September meeting. Roughly 97 basis points in easing are priced in by the end of December, suggesting that markets remain convinced an economic slowdown will ultimately translate into at least one half-percentage-point move.

Data released in the first half of September could see markets move more aggressively as expectations are dialled in more closely - particularly if labour markets and inflation pressures fail to continue their long moderation.

Powell will not take public questions after delivering his comments. You can watch the livestream here: Jackson Hole Economic Policy Symposium

Bank of England Governor Andrew Bailey will speak later today, and European Central Bank chief economist Philip Lane will join a panel discussion tomorrow.