What Jay Powell's Jackson Hole message means for markets
Jay Powell delivered a hawkish speech on inflation at last week's Jackson Hole meeting. Alex Rankine explains what his speech means for markets.

“Gone are the days [when] we could rely on a Powell-backed equity rally,” says Ipek Ozkardeskaya of Swissquote Bank. Stockmarkets are used to central bankers offering them goodies when the economy weakens, but last week US Federal Reserve chair Jerome Powell instead threatened to remove the punchbowl. He made clear that “inflation must come down even if it means pain for households and businesses”.
The annual “central bankers’ conclave” in Jackson Hole, Wyoming, sees the world’s most powerful monetary policymakers gather to share “the latest reading from their models, crystal balls or chicken intestines”, says Irwin Stelzer in The Sunday Times. In 2021 Powell declared at the meeting that high inflation “was likely to prove temporary”. What a difference a year makes. With US inflation at 8.5%, he will now do battle with the inflationary tiger. Markets tumbled after Powell’s speech, with the S&P 500 and Nasdaq Composite falling 3.4% and 3.9%.
Japan’s Nikkei slipped by 2.7%. US interest rates are currently between 2.25% and 2.5%. Markets now expect the Fed to raise rates to “3.8% by February 2023, up from expectations of 3.3%” at the beginning of August, says the Financial Times. Powell and other senior global central bankers pushed back strongly against market bets that they will start cutting rates next year, says Bloomberg. Instead, they “expect to raise rates and hold them at elevated levels” until inflation is back under control.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Learning from history
Powell was also at pains to dash hopes that July’s softer inflation figures would herald a Fed pivot, says Ian Shepherdson of Pantheon Macroeconomics. “A single month’s improvement falls far short of what [we] need to see before we are confident that inflation is moving down,” he said. Powell noted that “the historical record cautions strongly against prematurely loosening policy”. Powell is referring to the 1970s, say Thomas Sargent and William Silber in The Wall Street Journal. When inflation spiked to 11% in 1974 thenchair Arthur Burns reacted by hiking rates to more than 12%.
That move temporarily brought inflation under control, but the resulting recession and unemployment then prompted Burns to ease too quickly. He cut short-term rates in half, causing a second price spike that eventually saw inflation peak at 14.6% in 1980. The Fed remained on the back foot in the fight against the “great inflation” until the early 1980s.
Powell will be keen not to repeat that experience, says Russ Mould of AJ Bell. Low unemployment and few “signs of distress in the wider US economy and financial system” from hikes so far will probably embolden the Fed to “keep monetary policy tighter for longer than financial markets currently expect”.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
-
Thousands more pay inheritance tax with figures expected to double before decade’s end
Number of deaths triggering inheritance tax rose 13% in a year with more increases predicted as Rachel Reeves’ pension reforms apply from April 2027
-
Should you invest in Microsoft?
Microsoft is set to become the second company in the world to reach a $4 trillion valuation. Is now a good time to invest in Microsoft?
-
How to use SAYE and SIP schemes to multiply your money
Employers’ savings or share-incentive plans like SAYE and SIP schemes can help top up your pension
-
America’s looming debt crisis could blow up the entire financial system
Opinion Everyone’s trying hard to pretend that America's debt trap doesn’t really matter. It does, says Bill Bonner
-
Where investors can find value now
Opinion Active fund managers and blue chips on both sides of the Atlantic look appealing, says ByteTree’s Charlie Morris
-
What's behind the big shift in Japanese government bonds?
Rising long-term Japanese government bond yields point to growing nervousness about the future – and not just inflation
-
Farming isn't for the faint-hearted – there are no profits to harvest
Opinion Farming may look appealing, but turning a profit is extremely hard. No wonder many farmers are attracted to the Sustainable Farming Incentive, says Max King
-
Do we need central banks, or is it time to privatise money?
Analysis Free banking is one alternative to central banks, but would switching to a radical new system be worth the risk?
-
Will turmoil in the Middle East trigger inflation?
The risk of an escalating Middle East crisis continues to rise. Markets appear to be dismissing the prospect. Here's how investors can protect themselves.
-
Inflation is tamed at last – when will interest rates fall?
UK inflation may have hit the Bank of England target but it's unlikely to stay that way for long. What does that mean for interest rates?