Market Reactions After Powell’s Historic Speech at Jackson Hole

Global markets opened this Monday’s trading session with relative calm, following a highly active and volatile end to last week. On Friday, markets experienced notable moves: gold continued its rally, reaching levels close to $3,370 per ounce, while the Dow Jones Industrial Average hit new record highs. At the same time, the US dollar saw a noticeable decline.

This drop in the dollar came after remarks by Federal Reserve Chair Jerome Powell during his keynote speech at the annual Jackson Hole Economic Symposium, the most important monetary policy event in the United States. Powell aligned closely with market expectations, indicating the possibility of an interest rate cut at the upcoming September Fed meeting.

Powell found himself in a delicate position amid growing signs of weakness in the US labour market. Over the past three months, the US economy has added an average of only 35,000 jobs per month, which is the weakest performance since before 2007. Meanwhile, headline inflation remains steady at 2.7%, while core inflation climbed to 3.1% in July.

This divergence has reignited concerns over stagflation, as the economy struggles with weak growth, a fragile labour market, and persistently high inflation.

In his speech, Powell showed a clear inclination to prioritize the labour market slowdown, even as he reaffirmed the Fed’s vigilance toward inflation risks. He commented on the potential inflationary impact of expected tariffs, describing it as a "one-time increase," even if it spans several months.

While markets are currently pricing in a potential rate cut in September, all eyes remain on a set of critical upcoming economic data that will play a major role in shaping the Fed’s decision. Among these are:

· The Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, is to be released this Friday.

· The US Non-Farm Payrolls Report for August, scheduled for release on the first Friday of September.

Should the data show even slight improvement in the labour market while inflation remains elevated, the Fed may reassess its position, leaning toward addressing inflation risks over labour market concerns. Such a shift could disappoint investors on Wall Street who are hoping for a near-term rate cut.

Short-Term Market Outlook

In the short term, markets are expected to remain relatively calm, with close attention being paid to statements from Fed officials in the coming weeks. From a technical perspective:

· Gold is likely to remain in a sideways trend between $3,330 and $3,400 per ounce, with a slight upward bias.

· The US dollar may continue its decline, especially if it breaks below the key support level at 97.17.

· US equities, led by the Dow Jones, maintain a positive outlook and could continue reaching new record highs, though weak overall momentum may expose them to short-term corrections.

The broader picture remains contingent on upcoming data releases, which will significantly shape the direction of US monetary policy in the months ahead.