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- Powell Feeds The Doves At Jackson Hole
Powell Feeds The Doves At Jackson Hole
The Macro Institute's Weekly Economic Primer
The Macro Institute
August 25, 2025
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This is a bit of a “be careful what you wish for.” Calls for Fed easing usually come when the labor market is weakening. On that front, Tuesday’s Conference Board update on the “jobs hard to get” and “jobs plentiful” series will be worth watching, particularly to see if it continues to track with policy proxies like the yield curve.
The week is also busy with regional PMIs: the Dallas Fed Index today, the Richmond Fed on Tuesday, the Kansas City Fed on Thursday, and the Chicago PMI on Friday. Rounding things out, Friday’s PCE release, especially the core PCE measure the Fed watches closely, could prove market moving.
The Macro Week In Review
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The Macro Week Ahead
🕊️ Feeding The Doves At Jackson Hole
The Fed’s annual symposium in Jackson Hole has historically served as the stage for major monetary policy shifts (2010, 2014, 2020, 2022). With this year’s event falling just ahead of the September FOMC meeting, all eyes were on Chairman Powell’s speech last Friday.
The key takeaway: “with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
Markets heard the dovish tone and equity indices rallied, with the Russell 2000 surging nearly 4% on the day. Bond yields fell across the curve, and the probability of a September rate cut jumped from 65% to 85%. Investors appeared to focus on Powell’s concern over labor market softening, while discounting his warnings about tariff-driven inflation. The Fed is framing tariff-related price increases as one-off shocks, with inflation expected to revert once the initial pass-through is absorbed. While the Fed remains watchful of inflation expectations, Powell signaled tariffs alone will not drive policy.
Looking further out, our research points to higher growth and inflation heading into 2026, which is an environment historically supportive of cyclical equity sectors. The dual forces of monetary and fiscal stimulus have already laid the foundation for strengthening leading indicators. Without a downturn, the labor market is unlikely to generate the slack needed to cool wage pressures. Immigration policy and demographics may provide partial relief, but the broader implication is higher rates over the medium term. In the near term, however, equities are likely to remain in a regime where bad economic news = good market news.
📆 The Week Ahead
The Bloomberg Economic Surprise Index, which has been recovering since early July, is now on the cusp of turning positive. The August flash U.S. Manufacturing PMI registered 53.3, up sharply from 49.8 last month, with New Orders at 53.6 and Prices Paid accelerating to 67. Together, these readings reinforce our call for an inflationary recovery.
The Philly Fed survey remains noisy, and growth momentum looks less convincing near term, but one clear takeaway from both surveys is that inflation trends are firming. Additional regional PMI reports arrive this week with Dallas (Today), Richmond (Tuesday), Kansas City (Thursday), and Chicago (Friday). We expect continued volatility in order activity as supply chains adjust to the evolving trade regime as tariffs continue filtering through the economy.
On Tuesday, the Conference Board’s Consumer Confidence release will be closely watched. Expectations peaked in November 2024 before plunging to multi-year lows in April. Stock prices often track shifts in confidence, so we anticipate August data to show further normalization. Over the cycle, consumer sentiment has mirrored employment trends, and with payroll growth slowing steadily since 2021, confidence readings are likely to remain subdued relative to past expansions.
The week’s main event comes Friday at 8:30 am with the July PCE report. Core PCE is expected at 2.9%, up 10 bps from last month. Reminder, July CPI and PPI both surprised to the upside above 3%. Our leading indicators suggest we are in the early phase of a new inflation upcycle, though far less extreme than the post-pandemic surge.
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