Daily Newsletter 8/22/25
There is no question about what the most significant economic event is these days. Whether one agrees with Federal Reserve policies or not, monitoring such an important—perhaps the most important—financial player should be an essential part of any investor’s schedule.
The most important economic event today is Federal Reserve Chair Jerome Powell’s keynote speech at the Jackson Hole Economic Policy Symposium. This is Powell’s eighth and final address at Jackson Hole in his current term, closely watched by markets for clues about the Fed's future policy direction on interest rates, inflation, and the economic outlook amid rising uncertainties.
President Trump intends to bring the Federal Reserve under closer influence of fiscal policy, a strategy that risks deprioritizing the critical challenges posed by the mounting budget deficit and escalating Social Security and Medicare costs. We expect Chairman Powell to deliver a measured and impartial address today, concentrating on outlining his policy framework rather than commenting on prospective interest rate adjustments.
In order to analyze it correctly, it is important to know how we came to this point. Since the onset of the COVID-19 pandemic in early 2020, the Federal Reserve adopted an extremely accommodative monetary policy to support the economy. In March 2020, the Fed made emergency rate cuts, lowering the federal funds rate sharply from around 1.5% to a near-zero range of 0% to 0.25%, where it remained for nearly two years. This was accompanied by large-scale asset purchases (quantitative easing) and lending programs to stabilize financial markets and support households, businesses, and local governments during the crisis.
Beginning in early 2022, facing rising inflation, the Fed embarked on one of the most aggressive tightening cycles in decades, steadily raising interest rates to curb inflation pressures. By mid-2023, rates had increased to a range above 5%. In 2024, as inflation showed some signs of moderating amid lingering uncertainties such as tariff risks, the Fed began cautiously cutting rates, signaling a potential shift toward easing.
In 2025, the Federal Reserve maintained a cautious approach to interest rate policy. The federal funds rate was held steady at a range of 4.25% to 4.50% for several consecutive meetings, reflecting a wait-and-see stance amid moderating economic growth, persistent inflationary pressures, and labor market uncertainty. Although inflation remained somewhat elevated, the unemployment rate stayed low, and economic activity showed signs of slowing compared to earlier robust growth. Two Federal Reserve governors dissented in favor of a rate cut, the first dual dissent since 1993, highlighting some internal debate. The Fed emphasized that future rate adjustments would depend on incoming data and evolving risks, signaling readiness to act if necessary while closely monitoring the economy. Market expectations have included a potential rate cut in the near term, with Powell’s upcoming Jackson Hole speech seen as pivotal in shaping that outlook.
Throughout this period, Fed communications emphasized balancing inflation control with supporting economic growth and adapting to evolving labor market conditions. Recent Fed statements highlight ongoing uncertainty about the economic outlook while maintaining a cautious approach to future rate changes.
A debate on how the Federal Reserve will proceed depends on many factors; however, one clearly stands out: tariffs and their effects. As tariffs are implemented, real economic growth is expected to slow down, accompanied by a moderate rise in inflation. Businesses are likely to pass increased costs onto consumers gradually rather than all at once, aiming to minimize the impact and avoid shocking the market. Contrary to some claims, the notion that foreign suppliers will absorb the full burden of these tariffs is largely overstated; in reality, they will only bear a small fraction of the additional costs, with most being transferred to domestic consumers over time.