Markets bet on rate cuts, but Powell holds the cards at Jackson Hole

• Powell’s Jackson Hole speech carries trillion-dollar weight
• Markets bet on September cut but Fed minutes push back
• Soft landing in sight, politics wants fireworks

Jackson Hole isn’t just postcard scenery.

Each August, the world’s central bankers head into the Wyoming mountains for a few days of economic chinwagging.

On the surface it feels like an academic retreat – speeches, research papers and debates under the high country sky.

But for markets, Jackson Hole is where a sentence can move trillions.

This year’s symposium kicks off on Thursday, with Jerome Powell’s speech landing Saturday morning AEST.

For investors, this is where he could signal where the Fed is heading into September and beyond.

Does he crack the door to a rate cut? Does he double down on patience? Or does he keep everyone guessing?

Whatever his choice, it will ripple across bonds, equities, currencies and commodities.

Mixed signals

Markets have been trading like a September cut is already inked in.

Traders have loaded up on options positions that would pay handsomely if the Fed delivers, even betting on a chunky 50bp move.

That’s despite the data still being messy and contradictory.

US producer prices (PPI) jumped sharply in July, but consumer prices came in cooler than expected.

Payrolls disappointed badly, yet consumers are still spending.

And now the Fed’s own minutes (of the Federal Open Market Committee meeting held on July 29-30) released on Wednesday, have revealed another layer of tension.

Officials admitted worries over both jobs and inflation, but “a majority of participants judged the upside risk to inflation as the greater of these two risks.”

That explains why the committee held rates steady in that meeting, even as two governors dissented in favour of a cut.

And that is also why Jackson Hole has investors on edge.

The data isn’t one-way, so the signal from Powell becomes even more important.

His speech won’t just be about September, it will help set expectations for the rest of 2025, maybe even 2026.

“Evidence is compelling”

Nigel Green, chief executive of deVere Group, believes Powell will try to tone down the narrative in Jackson Hole, to make sure it doesn’t look like the Fed has already locked in a cut.

“But when you strip away the rhetoric, the evidence is compelling. We believe that rates are coming down in September,” he said.

If Green is right, the winners are predictable: tech and growth stocks.

But not everyone is convinced.

Benoit Anne at MFS Investment Management warned that markets may be too far out over their skis.

“According to current market pricing, a Fed rate cut in September is virtually a done deal. Except that it really is not.”

Anne points back to Powell’s own words in July – patience, prudence, uncertainty – none of which screamed urgency.

Anne also pointed to a market backdrop that looks too comfortable.

Volatility in both bonds and equities has dropped to multi-year lows, and valuations are flashing red.

“Priced for perfection”, as he put it.

The long glide path

Meanwhile, Michael Knox, chief economist at Morgans, is zooming out from the noise of September.

He argues the Fed has actually engineered what it wanted all along – a “soft landing”.

“What we have is the kind of slowdown that the Fed tries to construct when it is slowing the economy to reduce inflation.”

Knox’s data shows payroll growth is slower but still positive, meaning the US is cooling without crashing.

He also reminded us monetary policy works with long lags:

“On average it takes around five quarters maybe six, for movements in the Fed Funds rate to have their major effect on US GDP and US employment.”

Last year’s peak rates are still filtering through the system, and their drag will last into early 2026.

That’s why his model suggests the Fed Funds rate could drift down toward 3.66% equilibrium, opening the door to 50 to 75 basis points of cuts in 2026.

But that, he said, will be a “long glide path”, not a sudden pivot.

For investors, it means don’t expect fireworks now, the real easing cycle may still be a year away.

That could be too late for Trump’s political calendar, but for portfolios, it offers a supportive backdrop over the medium term.

The playbook for Aussie investors

If Powell leans dovish, growth, small caps, and rate-sensitive names should rally.

Tech, healthcare, and REITs would also benefit from lower yields, while miners could catch a bid from a softer US dollar.

If Powell pushes back and keeps September as “wait-and-see”, the reverse applies: growth and property wobble, the greenback firms, and commodities may soften.

Banks may hold steady either way, but keep an eye on the yield curve.

The politics, meanwhile, will add colour but not clarity.

Trump has sacked officials, shouted for cuts, and his Treasury Secretary, Scott Bessent, has echoed the call.

But Knox’s reminder rings loud: “The job of the Fed is not to be political. The job of the Fed is to give the US lower inflation.”

That’s what Powell will defend in Wyoming.