Federal Reserve Federal Reserve Federal Reserve

Jackson Hole: The Fed is trade war dependent

Christopher Dembik

Head of Macroeconomic Research

Summary:  Powell was slightly more dovish, opening the door to further easing measures in September, mostly to offset negative trade developments. However, there is still a lack of clarity from the Fed regarding where we are in the current business cycle.

Jerome Powel Jackson Hole speech on “Challenges for Monetary Policy” was highly anticipated due to new tensions on the trade war front, and mixed message sent by the latest FOMC minutes.

In the chart below, you can see a very short summary of the US macroeconomic outlook: downward pressure on the economy but overall doing fine, risk contagion from the manufacturing sector to the service sector, which tends to confirm the late-cycle thesis, and risk of recession back to levels reached before the Global Financial Crisis.

Our main takeaways:

  • Our first impression is that Powell was slightly more dovish, which indicates the door is open to a new rate cut in September. He has not clearly downplayed a 50 bps cut next month but, based on his overall positive outlook for the US economy, there is no reason at this point to believe that the FED is about to announce a bigger cut than 25 bps.

  • The Fed is now trade war dependent, which is probably the most important point to remember in coming weeks and months, especially in the context of upcoming new US tariffs against China. The Fed has always taken into consideration the global context, but it is obvious that this time it is a playing a dominant role. Like in his short testimony to Congress in early July, Powell used the words uncertainties and risk many times, putting very special attention on global trade developments, which constitutes a change compared to previous cycles.

  • There is still a lack of clarity from the Fed regarding where we are in the current business cycle. Powell cited 95 and 98 insurance rate cut examples like in past July, but this time there is no mention of “mid cycle adjustment”. This is a slight change, but it matters as evidence point out that we are not mid cycle, not even late cycle but rather at the end of the cycle. The Fed’s main goal is not to speed up growth, but to get in front of the inverted yield curve. Like it or not, the Fed has started a new easing cycle last month.

Market implications: the deadline of September 1st, when the US administration is expected to implement new tariffs against China, will increase pressure on the Fed to stimulate the economy. A 25 bps cut in September is a done deal and we may see another 25 bps cut by the end of the year (probably in December, following new tariffs against China and potential US retaliation against the European car industry).


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.