Summary
Markets initially surged on Powell’s Jackson Hole dovishness but saw a notable retracement Monday as investors took profits and re-evaluated the policy outlook. While Powell’s speech sets the stage for imminent easing, it leaves important long-term questions about inflation, economic resilience, and the ultimate path for rates.
Jackson Hole Fallout: Immediate and Long-Term
Powell’s Dovish Pivot:
Powell’s address signaled policy flexibility, nearly confirming a September rate cut, and recognized softening labor momentum. However, he maintained inflation vigilance, clarifying that further moves remain data-dependent and that the Fed won’t sacrifice its 2% target
Monday’s Retracement
Stocks:
After an initial rally Friday, Monday brought a moderate pullback in US equities and global risk assets. Market breadth narrowed, speculative tech and small caps underperformed, and traders cited overstretched near-term sentiment and the need for further confirmation from upcoming macro data and Fed communications
Bonds:
Treasury yields partially retraced late Friday’s drop as rate-cut euphoria faded and sellers emerged with profit-taking, especially at the long end of the curve
Crypto:
Digital assets that rallied sharply post-speech also gave back gains as risk appetite cooled, with Bitcoin and Ethereum both retracing 2–4% off weekend highs.
Powell’s Speech – The Bigger Picture
Short-Term Policy Boost:
Powell “opened the door” for easier policy, calming immediate fears of overtightening, and providing space for risk assets to reboundLonger-Term Uncertainty Remains:
Powell stressed that while disinflation is advanced, core inflation is still sticky, and he will not “declare victory prematurely.” Fed policy will remain highly reactive to incoming labor/inflation data and global developments.Risk of Stop-and-Go:
By affirming “flexibility” and refusing to pre-commit to further cuts, Powell risks bouts of volatility as markets toggle between soft-landing and stagflation risks, and the persistent danger of a renewed inflation shock if policy loosens too quickly.
Asset Class Implications & Outlook
Scenario | Fed Action | Impact on Stocks | Bonds | Commodities | Crypto |
|---|---|---|---|---|---|
Smooth disinflation | Cut in September | Rally resumes | Yields lower | Gold range, oil steady | Crypto up |
Inflation rebounds | Pauses more cuts | Tech/cyclical profit-taking | Yields rebound | Gold up, oil up | Crypto correction |
Growth weakens sharply | Cuts accelerate | Defensive outperformance | Curve steepens, yields plunge | Safe havens bid | Crypto volatile |
Equities: Ongoing sector rotation and heightened volatility likely as each new data print moves the needle on rate expectations.
Bonds: Yields are range-bound; strong data or inflation surprise could push rates back higher, while weak data confirms the Fed’s dovish pivot.
Commodities: Gold remains a hedge but lacks clear trend; oil and industrial metals will follow growth signals.
Crypto: As a liquidity-sensitive asset, crypto remains highly volatile—major rallies will need tangible follow-through on Fed easing, while profit-taking is likely without it.
Conclusion
Powell’s Jackson Hole speech gave markets a much-needed near-term boost but stopped well short of a green light for prolonged easing. Yesterday’s retracement reflects lingering caution—investors should expect choppy trading and frequent re-pricing as the economic picture and Fed path evolve. Key data on jobs and inflation this week will determine whether risk appetite resumes—or if the Jackson Hole bounce was just a fleeting relief rally.
Watch: US GDP (Thursday), PCE inflation, and jobless claims as the next key catalysts shaping global asset allocation.
Risk Disclaimer: This analysis reflects current market conditions as of August 26, 2025. Rapid changes in economic data, geopolitical developments, or central bank communications could materially alter the outlook. Diversification and appropriate risk management remain essential in the current environment. None of this is financial advice, Wizard Macro Research cannot be held responsible for any losses