LPL Research provides its midyear bond and commodity market outlook on interest rates, Federal Reserve rate cuts, gold, the U.S. dollar, and much more.

Jackson Hole Economic Symposium

The Kansas City Fed’s annual symposium, from August 21-23 with the theme “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy,” has long served as the world’s most exclusive economic gathering. What began in the early 1980s as a way to entice Fed Chair Paul Volcker through excellent fly-fishing opportunities has evolved into the premier venue for monetary policy announcements. The symposium’s 100-120 attendees have witnessed landmark moments, including Ben Bernanke’s 2010 signal for a second round of quantitative easing, Mario Draghi’s 2014 groundwork for European stimulus, and Jerome Powell’s 2020 introduction of average inflation targeting. This year’s gathering carried particular weight as Powell delivered what was likely his final Jackson Hole address as Fed chair, with markets placing roughly an 85% probability on a September rate cut before his comments but priced in a near certainty of a cut after his remarks were made public.

Highlights from Jerome Powell’s Jackson Hole Speech:

• Softer employment data has likely pushed the Fed toward rate cuts at their September 17 meeting. A welltelegraphed statement removes some of the uncertainty plaguing investors.
• Yields plummeted and equities rallied from the increased clarity about future rate decisions. • Since last year’s Jackson Hole event, the upside risks to inflation have diminished and the unemployment rate has increased by almost a full percentage point (3.4% to 4.2%), a development that historically has not occurred outside of recessions. We think recession risks are low despite concerns that Q3 GDP growth will flatline.
• Tariff effects will be short-lived but not necessarily felt all at the same time. “It will continue to take time for tariff increases to work their way through supply chains and distribution networks.” We expect inflation metrics to accelerate over the next several months.
• Although not as exciting, Chair Powell discussed in his speech the four main revisions to the policy framework, a review the Fed does roughly every 5 years. Demographics, fiscal policy, and other factors suggest that the long-term neutral fed funds rate is likely higher than during the 2010s.