Jackson Hole's "Dovish Tone": Powell's Final Performance and the Federal Reserve's Crossroads

At the foot of the snow-capped mountains in Wyoming, the global financial community's attention is once again focused on Jackson Hole. This small town with a population of less than 10,000 has become a "barometer" of monetary policy due to the annual central bank meeting in August. On August 22, 2025, Federal Reserve Chairman Powell delivered his final annual meeting speech here, marking the end of this half-century-long policy relay race.

I. The "Barometer" of Policy Turning Points Rings Again

Unlike previous years, this year's meeting is shrouded in a special historical moment: U.S. national debt has exceeded $37 trillion, with interest payments surpassing the defense budget for the first time; the Trump administration's tariff policies have pushed up import costs, with July PPI rising 0.9% month-on-month, far exceeding expectations; the job market shows a "delicate balance," with non-farm payrolls adding only 73,000 jobs and the unemployment rate rising to 4.2%. Against this backdrop, Powell's speech not only concerns short-term policy paths but will also reshape the Federal Reserve's policy framework for the next decade.

II. Dovish Turn: The Narrative Shift from "Pain" to "Adjustment"

Powell opened with a key signal: "Changes in the risk balance may require adjustments to the policy stance." This stands in stark contrast to his 2022 statement here that he would "control inflation at all costs." At that time, the Federal Reserve was undergoing its most aggressive rate-hiking cycle in 40 years, with the federal funds rate soaring from 0.25% to 5.5%, and Powell used the word "pain" to warn the market. Now, his rhetoric has shifted to "flexibility" and "balance," acknowledging that the downside risks to employment now outweigh the upside risks to inflation.

Behind this shift are substantive changes in economic data. Although July core CPI remained at 3.1%, the stickiness of service inflation is weakening, and the labor market is cooling more significantly—the labor participation rate fell by 0.3 percentage points, and wage growth slowed to 3.8%. More notably, the Trump administration's policy of deporting illegal immigrants has reduced labor supply, causing structural distortions in employment data. Powell specifically pointed out that these "non-monetary factors" are changing the Federal Reserve's assessment logic for full employment.

III. Framework Reconstruction: Farewell to the Era of "Compensatory Inflation"

Beyond short-term policy signals, Powell's speech also completed a historic adjustment to the monetary policy framework. The "average inflation targeting" introduced in 2020 allowed inflation to moderately exceed 2% to compensate for earlier gaps, but this framework proved inadequate in the face of post-pandemic high inflation. The new version of the "Statement on Longer-Run Goals and Monetary Policy Strategy" explicitly abandons the "compensatory" strategy, returning to flexible inflation targeting and emphasizing "firmly ensuring long-term inflation expectations remain anchored at 2%."

The deeper logic behind this adjustment lies in changes to the economic structure. Post-pandemic, U.S. national debt surged by $12 trillion, and the federal funds rate midpoint rose by 2 percentage points to 4.25%-4.5% compared to pre-pandemic levels. Powell admitted that the 2020 framework was "too deeply tied to the low-interest-rate environment," and the current high-debt economy requires a more robust policy anchor. The core of the new framework is "balanced thinking": when inflation and employment goals conflict, strategies are dynamically adjusted based on the degree of deviation and the time required for regression.

IV. Market Reaction: From "Irrational Speculation" to "Volatile Return"

After Powell's speech, the three major U.S. stock indices collectively, with the Dow Jones rising 870 points in a single day, and Tesla's market value surging by 460 billion yuan. This reaction reflects both pricing for rate-cut expectations—CME data shows a 91.3% probability of a 25-basis-point cut in September—and an optimistic interpretation of the policy framework adjustment. However, the market seems to have overlooked Powell's deliberately retained "hawkish tail": he explicitly stated that tariff-induced inflation is a "one-time shock" and that the Federal Reserve would not tolerate it evolving into sustained inflation.

Historical experience shows that policy signals from Jackson Hole are often accompanied by market overreactions. In 2019, after Powell hinted at "appropriate action," the S&P 500 rose 5% in a month, only to give up all gains due to escalating trade frictions. Current market sentiment similarly harbors risks: JPMorgan predicts a 75-basis-point cut in 2025, while Goldman Sachs is betting on three cuts, but the Federal Reserve's balance sheet on August 14 still showed liquidity withdrawal. This expectation gap could trigger subsequent volatility.

V. Global Ripples: The Game from "Dollar Hegemony" to "De-Dollarization"

Powell's policy shift affects not just the U.S. Emerging market currencies generally strengthened against the dollar, with offshore yuan appreciating 0.8%, a stark contrast to the 2022 "dollar shortage." However, it is worth noting that the continued expansion of U.S. debt is undermining the foundation of dollar credibility—the proportion of U.S. Treasuries held by foreign investors has fallen to 24%, the lowest since 2008.

For China's market, Powell's dovish signals bring dual effects: on one hand, foreign capital's willingness to allocate Chinese assets has increased, with the Nasdaq Golden Dragon China Index rising 2.8% that day; on the other hand, the Trump administration's tariff policies may offset some of the easing benefits. China's exports to the U.S. fell 12% year-on-year in July, and prices of electromechanical products rose 4.2% due to tariffs, creating a policy hedge against Federal Reserve rate cuts.

VI. Future Prospects: The Dual Variations of Data Dependence and Political Games

Powell repeatedly emphasized the principle of "data dependence" in his speech, but economic data over the next three months will be fraught with uncertainty. August CPI data will be released on September 12; if core inflation falls below 3%, a September rate cut is almost certain; otherwise, if tariff-driven price increases spill over to the consumer side, the policy shift may be delayed. More complex is the Trump administration's policy interventions, which are exacerbating market volatility—its continued pressure on Federal Reserve governors could influence the voting dynamics of the September FOMC meeting.

This policy drama staged in the mountain town ultimately reveals the deep dilemmas of contemporary monetary policy: under the triple pressures of high debt, political polarization, and deglobalization, the Federal Reserve must walk a tightrope between "fighting inflation" and "stabilizing employment." Powell's farewell speech is both a summary of the past eight years of policy and a preview of the challenges for the next decade. As he said in closing: "Monetary policy is always about finding balance amid uncertainty, but the resolve to anchor inflation expectations has never wavered."

As dusk deepens over the snow-capped mountains, global investors will set out anew with fresh policy coordinates. And the legend of Jackson Hole will continue to write new chapters in the next economic cycle.$Nasdaq(NDAQ.US)