TLDR
- Fed Chair Powell warned at Jackson Hole that tariffs and immigration changes are making inflation harder to control
- Rate cuts will likely remain cautious through Q4 2025 due to inflation risks outweighing employment concerns
- Powell’s term ends May 2026, and Trump may appoint a more dovish replacement who could ease policy faster
- Current policy supports Bitcoin and large-cap crypto over speculative altcoins due to tight liquidity conditions
- Markets must price both Powell’s cautious approach through 2025 and potential policy shift in 2026
Fed Chair Jerome Powell delivered a measured message at the Jackson Hole Economic Policy Symposium on Friday. His speech balanced rising inflation concerns against a weakening job market.
Powell pointed to clear evidence that tariffs are pushing up consumer prices. Headline PCE inflation reached 2.6% in July while core inflation hit 2.9%.
The labor market shows what Powell called a “curious kind of balance.” Monthly job growth has slowed to about 35,000 from 168,000 in 2024.
Unemployment currently sits at 4.2% as immigration flows have cooled. Labor force growth has also softened across the economy.
JUST IN: 🇺🇸 Fed Chair Jerome Powell suggests current conditions 'may warrant' interest rate cuts. pic.twitter.com/Ogn5NsxHOz
— Watcher.Guru (@WatcherGuru) August 22, 2025
Powell said near-term risks tilt upward for inflation and downward for employment. This mix argues against rapid rate cuts in coming months.
The Fed dropped its 2020 average inflation targeting approach. Officials returned to flexible 2% targeting with updated employment guidance.
Political Timeline Creates Market Uncertainty
Powell’s current term expires on May 15, 2026. He has stated his intention to serve the full term.
Trump has criticized Powell publicly and called for lower interest rates. Legal protections prevent presidents from removing Fed officials over policy disagreements.
Trump can announce his preferred replacement well before 2026. This gives markets time to price in a potentially more dovish chair.
Political tensions surfaced when Trump threatened to fire Fed Governor Lisa Cook on Friday. He cited alleged mortgage fraud and demanded her resignation.
Like Powell, Fed governors have strong legal protections. They can only be removed for specific cause under federal law.
Treasury Market Implications
The speech suggests a slower easing path through Q4 2025. Rate cuts depend on convincing inflation retreat rather than market expectations.
Tariff effects keep goods prices sticky while services inflation eases gradually. Front-end yields are likely to stay firm under current conditions.
A future less cautious chair could compress term premiums later. This would happen by signaling a quicker path to neutral rates.
Rate volatility remains high between now and potential leadership change. Treasury rallies will be data-driven rather than policy-driven.
Crypto Market Positioning
Higher rates for longer curb speculative flows into altcoins and crypto stocks. Mining companies and exchanges face elevated funding costs.
Sustained above-target inflation supports the hard-asset narrative for Bitcoin. Assets with scarcity properties benefit from inflation concerns.
This combination favors Bitcoin and large-cap tokens over speculative projects. Cash-flow-supported cryptocurrencies outperform until Fed signals more cuts.
A successor chair perceived as less cautious could boost crypto liquidity in 2026. However, leadership uncertainty creates near-term volatility for traders.
Data-Dependent September Decision
September rate cuts appear highly likely based on current market pricing. Powell’s framing emphasizes inflation expectations over market hopes.
Housing transmission remains muted due to mortgage lock-in effects. Small cuts may not quickly unlock economic growth.
Global easing elsewhere provides marginal liquidity support for risk assets. Dollar strength and term premiums depend on inflation persistence.
Powell’s speech positioned the Fed as patient and data-focused through 2025. Markets now must price this caution alongside potential 2026 policy shifts.
