Jackson Hole 2025 – The Fed's Challenging Roadmap
This year, the US Federal Reserve (Fed) Jackson Hole meeting was overshadowed by political pressures and economic uncertainties, rather than the calm academic discussions markets are accustomed to. While Chairman Jerome Powell indicated that a rate cut was on the table at the September meeting, significant disagreements emerged among policymakers. Inflation, which is running above the %2 target and showing signs of persistence due to tariffs, and the employment market, which slowed significantly over the summer, continue to pressure the Fed in two directions. As Chicago Fed President Austan Goolsbee stated, “getting the timing right during transitional moments is the hardest job for a central bank.” Another factor that marked the meeting was the escalation of political pressure. President Donald Trump continued his harsh criticisms undermining the Fed's independence, signaling direct intervention against the Fed administration through accusations against Governor Lisa Cook. As Powell delivered his speech, the significantly tightened security measures compared to previous years served as a concrete indicator of the pressure on the Fed. This atmosphere made Powell's emphasis on an independent Fed in his likely final Jackson Hole speech all the more significant. On the economic front, the picture is complex. Inflation indicators are stuck above % 2, and it is observed that price pressures in some sub-items have spread to non-tariffed products. On the other hand, the unemployment rate remains low and the loss of momentum in hiring signals weakness in the labor market. This two-way pressure makes consensus within the Fed difficult. Indeed, two members dissented when no interest rate cut was made at the July meeting; the possibility of reverse opposition could be on the agenda this time in the event of a rate cut in September. The new policy framework announced by Powell in his speech aims to simplify the Fed's focus in the long term. Elements specific to the post-2020 period of low inflation have been removed, and the mandates of "maximum employment" and "price stability" have been reemphasized. Global impacts are already being felt. Following Powell's statements, the euro appreciated against the dollar by %1; This introduced additional downside risks to the already downward eurozone inflation outlook. As former International Monetary Fund chief economist Maurice Obstfeld noted, slower growth expectations in the US could also mean lower growth for the eurozone and other economies.

US Markets
Dovish signals about interest rate cuts made by Fed Chair Jerome Powell during his Jackson Hole speech on the last trading day of last week led to a strong recovery in the S&P 500 index. However, futures contracts traded sideways on the first trading day of the new week, reflecting investors' cautious stance. Bond market activity remained limited, with the two-year Treasury yield rising 1 basis point to %3.71, while the 10-year Treasury yield settled at %4.27. The dollar index, which weakened after Powell's speech, saw a limited strengthening of %0.1 this week. This week's US inflation data, Nvidia's earnings report on Wednesday, and the intensified earnings season in Asia will all play a critical role in shaping market direction. While inflation data is expected to be a determining factor in the Fed's September steps, Nvidia's balance sheet stands out as a development that could directly impact risk appetite in the markets, both in terms of the outlook for AI spending and the sustainability of the current rally in technology stocks.

European Markets
European markets opened the week weakly on the first trading day, despite the support they received from Powell's dovish rhetoric in the US. Euro Stoxx 50 futures contracts fell 0.3%, and while investor risk appetite partially recovered following Powell's remarks, a cautious stance prevailed due to upcoming critical macroeconomic data releases and ongoing trade tensions. In foreign exchange, the euro/dollar pair fell 0.1% to 1.1705, while the limited global strengthening of the dollar put pressure on the euro. The weakness in European stocks was also influenced by cost pressures on global trade from the US's new tariffs and ongoing uncertainties regarding relations with China. While Powell's interest rate cut signals provided short-term support for European markets, the fragility of the economic outlook and geopolitical risks are causing investors to maintain cautious positions.

Asian Markets
Asian markets started the week strong, with significant gains observed across regional indices. The MSCI Asia Index rose 1.1% to post its strongest performance in nearly two weeks. In Hong Kong, the Hang Seng Technology Index gained 3.1%, led by technology stocks. In China, the Shanghai Composite Index rose 0.9% to approach a 10-year high. The easing of housing purchase restrictions, in particular, has fueled strong buying in real estate stocks. Japan's Topix rose 0.2% to 0.2%, while Australia's ASX 200 Index rose 0.3% to 1%. This positive trend in the region was driven by expectations of a Fed rate cut, along with the easing of regulations in China and supportive domestic policies. As investors' risk appetite revived following Powell's remarks, Asian markets were among the strongest beneficiaries of the global recovery.

Commodities
Commodity markets saw a mixed tone on the first trading day of the week. WTI crude oil rose 0.2% to $63.80 per barrel, while energy prices were driven by expectations of a potential Fed interest rate cut, which bolstered the global demand outlook. Meanwhile, precious metals followed a weaker trend, with spot gold falling 0.2% to $3,365.59 per ounce.

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