NDR: Powell signals shift in policy direction

In his Jackson Hole speech, Fed Chair Powell’s dovish stance aligned closely with both NDR's and the market’s expectations, reinforcing expectations for upcoming rate cuts. Our insights highlight Powell’s shift towards prioritizing employment, suggesting a series of cuts to support the labor market, while maintaining confidence in achieving inflation targets. However, NDR’s analysis also emphasizes the uncertainty surrounding the Fed's long-term policy direction, making the market particularly sensitive to new economic data.

• NDR's analysis suggests that Powell's focus on employment increases the likelihood of 25 bp cuts at the next three FOMC meetings, with a possibility of a larger 50 bp cut if the data comes in weaker than expected.
• Our research indicates that Powell’s confidence in controlling inflation aligns with a more labor-focused approach, guiding the Fed’s decisions based on employment trends.
• NDR notes the absence of clear guidance on long-term rate targets, highlighting the potential for significant market shifts in response to unexpected economic data.

In conclusion, the market needs to stay alert to potential volatility, as the Fed’s data-driven approach could lead to rapid adjustments in interest rate expectations.

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