Behind the September Rate Cut Frenzy: Powell's Speech Not So "Dovish"
The market widely interpreted Powell's speech at the Jackson Hole annual meeting as a clear signal for a rate cut in September, leading U.S. stocks to reach new highs. However, Stanford University President Jonathan Levin pointed out that this frenzy may overlook key details in the speech.
Levin believes that Powell's core message is not unconditional easing, but rather weighing the dual risks of the labor market and inflation amidst economic uncertainty. If a rate cut does occur, it is more likely due to economic troubles rather than cooling inflation, a deeper meaning that has been drowned out by market enthusiasm.
The Federal Reserve currently faces a dilemma: while the unemployment rate is low, the labor market is showing signs of fatigue, and inflation remains slightly above the 2% target. Powell emphasized that policy needs to balance the dual mandate, that interest rates are close to neutral levels, and that they will "proceed with caution" and "not preset a path." This divergence has already manifested internally, with the decision to maintain interest rates in July facing opposition from two board members, the first such dissent since 1992.
It is noteworthy that a rate cut may stem from concerns over worsening economic conditions. Powell mentioned that the labor market is in a "peculiar balance," with both supply and demand slowing, and risks of job losses rising, which could lead to a surge in layoffs. The GDP growth rate in the first half of the year was only half of last year's, inconsistent with the foundation of a stock market bull run.
Inflation risks still exist, and Trump's tariff policy could potentially drive up commodity prices in the future. Although Powell tends to overlook these "one-time" price changes, he also warned against taking stable inflation expectations for granted.
Levin believes that the market may have over-interpreted the dovish signals, and the actual situation is more subdued. The Federal Reserve may cut rates as early as next month, but the process could be slower than expected, with highly uncertain prospects. Powell's speech also cleverly sidestepped Trump's pressure for rate cuts, showing no signs of yielding.