Powell’s Power Play: Rate Cuts, Inflation Shifts & What’s Next for the Economy (feat. Jackson Hole 2025, Fed, and Rate Strategy, stagflation)

Is Powell about to crash the economy or save it? 🚨 Jerome Powell just dropped a bombshell at Jackson Hole on August 22, 2025, and the world’s economy might never be the same. Markets are on fire, with stocks and crypto surging—could a rate cut be the game-changer we didn’t see coming? With Powell signaling a potential pivot, the stakes have never been higher. The next few months could rewrite everything you thought you knew about the economy. What does this mean for YOUR money? The answers are here.

Powell’s Jackson Hole 2024: No Beating Around the Bush

1. In 2024, at the Jackson Hole meeting, Powell didn’t waste any time.
2. He kicked things off by saying, “Now’s the time to change policy,” and straight up announced that rates would be going down in September.
3. As soon as he said that, the U.S. stock market started to rally.
4. With Powell’s clear, dove-like tone from the get-go,
5. It became clear that a rate cut was coming, and the debate shifted to whether it would be 0.25% or 0.5%.

Fast Forward a Year: Powell Gets a Reality Check in 2025

6. A year ago, Powell seemed to think inflation was a thing of the past, and that only employment mattered.
7. Fast forward to the 2025 Jackson Hole meeting, and suddenly, inflation had wormed its way back into Powell’s thoughts.
8. Powell, once the perfect balance of hawk and dove, now had the mind and body of a dove, but his hawkish claws were still firmly in place.

Powell in Three Lines: What’s Going On?

9. Here’s a quick summary of Powell’s speech in three lines:
10. We’re close to maximum employment, and inflation is way more stable than it was during the pandemic. (I’ve been doing a decent job, right?)
11. We’re in a weird spot where inflation might rise, and employment might fall at the same time. (So no, it’s not all sunshine and rainbows with stagflation looming.)
12. With interest rates in restrictive territory, there’s room to make policy changes. (Yes, a 25bps cut is looking likely for September.)

Powell’s Key Points in a Nutshell: What Did He Actually Say?

13. To summarize Powell’s full speech:

• Employment risks are growing on the downside.
• The key interest rate is tight, so changes in risk factors could justify tweaking policy.
• Given the stability of unemployment and labor market indicators, we might cautiously consider a policy shift.
• Both labor supply and demand are slowing, which means job growth has taken a big hit.
• Inflation risks are rising in the short term, and tariff-driven inflation is clearly pushing up commodity prices.
• Inflation pressures will build over the next few months.
• But tariff-driven price hikes are seen as a short-term thing. The overall impact is expected to be temporary.
• The neutral interest rate has likely risen compared to the past, meaning the final rate could be higher.
• The effects of tariffs and immigration policies on the economy are still uncertain.
• The labor market took a sharp downturn in May and June, signaling a more significant slowdown.
• Immigration restrictions have reduced labor market supply, but demand is also dropping.
• Right now, we’re in a strange situation—labor supply and demand are both down, creating a fragile balance.
• Core PCE inflation is sitting at 2.9%, meaning both inflation and employment risks are growing. This is a challenging situation.
• In the short term, monetary policy must balance inflation and labor market pressures.
• Long-term inflation expectations are still aligned with the 2% target.
• The average inflation targeting (AIT) framework, which we’ve been using for five years, will be phased out.

The Central Banker’s Special Skill: Making Simple Things Sound Complex

14. Central bank leaders have this remarkable ability to take something simple and make it sound way more complicated.
15. Powell’s statement about scrapping the “average inflation targeting” framework after just five years may sound a bit confusing at first.
16. Average Inflation Targeting (AIT) was introduced in 2020, and it set a long-term target of 2% inflation.
17. AIT has been criticized because it can delay policy action, as it focuses on averages rather than reacting quickly.
18. So now, Powell is shifting from AIT to FIT (Flexible Inflation Targeting), which drops the “A” for “average.”
19. To reach a 2% inflation target on average, inflation would need to fall to around 1%, due to past inflation rates being higher than 2%.
20. But with FIT, the focus is only on current and future inflation rates, not worrying about the past.
21. Moving away from averages means policy can react faster, but the target becomes a bit less strict.

Powell’s Last Stand: Like a Veteran Soldier Taking One Last Look

22. Powell at this Jackson Hole meeting seemed like a seasoned vet nearing the end of his tenure.
23. But unlike a soldier just waiting for the end, Powell is more like one who’s avoiding every falling leaf, being cautious in his approach.
24. The market’s reaction? It’s like a sigh of relief that Powell didn’t completely mess up and at least gave us something to work with. The general feeling was something like, “Okay, we get it—your long-term worries are noted, but are we really cutting rates in September?”

Is a September Rate Cut Inevitable? Powell’s PCE Plot Twist and the Art of Making Simple Things Sound Complex

With the PCE soaring at the end of August, unless a major game-changer hits the economy, the chances of a September rate cut are looking higher than ever. And while Powell’s statements may seem like he’s making the simple sound complicated—well, that’s part of the job. In fact, if you can make a simple concept sound complex, you’re doing it right in the world of central banking!