Federal Reserve’s Recalibration Has Arrived!

Jackson Hole 2025: Powell All but Hints at the Pivot

If you were looking for a clear signal that the Fed is ready to shift gears, Click, Click, Boom! Jerome Powell’s August 22nd remarks at Jackson Hole might be as close as you’ll get without him waving a “rate cuts ahead” banner.

Powell’s Tone: Cool, Confident, and Quietly Dovish

The Chair opened by noting that inflation’s “down significantly and trending toward target” while the labor market remains “strong but balanced.” Translation: the Fed’s restrictive stance has done its job, and the urgency to keep rates sky-high is fading. He admitted that the “risks are becoming two-sided”—which could be code for “we’re just as worried about slowing growth as sticky inflation.”

The Framework Shift Makes Cuts Easier

The Fed remains committed to its 2% long-run inflation goal. While the 2020 framework allowed for temporary overshoots, recent messaging shows a stronger focus on keeping inflation near target, which could allow for more flexibility to adjust policy as inflation declines. This matters: it frees the Fed from old promises to tolerate overshoots and gives it the flexibility to ease when inflation’s beaten back—exactly the setup we’re in now.

Markets Heard the Message Loud and Clear

Futures are now pricing in a decent chance of a September cut, with even juicier odds by year-end. Stocks popped, credit spreads tightened, and the front end of the curve finally exhaled. Traders are calling it the start of a “soft landing with tailwinds” phase.

Why We’re Leaning into the Pivot Trade

• Powell stated in hit remarks that Inflation momentum is decisively lower.
• The Fed’s language is back to “we’ll do what’s needed,” which includes easing.
• The neutral rate might be higher long-term, but cuts from today’s restrictive levels could still deliver plenty of relief.

The Take Away

Powell used Jackson Hole to tee up the first rate cut of this cycle. I think the window opens as early as September, and once the Fed starts, it’s unlikely to stop at one-and-done as traders are pricing in two cuts by year end.

Enjoy your fall tailgating!

Kovitz Investment Group Partners, LLC (“Kovitz”) DBA Telemus. Telemus is a division of Kovitz, a registered investment adviser with the Securities and Exchange Commission (SEC). SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.