Will rate cuts fix a weak labor market? Stave off recession? We are about to find out. 
Balance of Risks Has Shifted
In a statement of the obvious, especially regarding jobs, Powell said at Jackson Hole the ‘balance of risks appears to be shifting’.
The Wall Street Journal comments Dow Gains as Fed Chair Powell Opens Door to Rate Cut
Speaking in Jackson Hole, Wyo., Powell cited risks that inflation will continue rising and that the labor market will keep weakening. He called that combination unusual and suggested it could prompt the Fed to support economic growth by reducing rates.
“The balance of risks appears to be shifting,” Powell said. While labor markets appear to be stable, “it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers.”
That has led to an “unusual situation” in which the risks of worse-than-expected labor-market outcomes are rising, he said. “And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment,” Powell said.
Powell’s comments notably tempered expectations of an aggressive string of rate cuts by pointing to concerns around inflation, which has been above the Fed’s 2% target for more than four years.
He also suggested that a so-called neutral setting for interest rates—or the level that neither spurs nor slows economic activity—might be higher than it was last decade. The Fed’s benchmark rate is currently around 4.3%.
Powell said the effects that tariffs are having on consumer prices “are now clearly visible” and are expected to accumulate in the months ahead. The question for the Fed is whether those price increases will “materially raise the risk of an ongoing inflation problem,” Powell said.
The upshot is that the risk of higher inflation, even if temporary, and a softening in the labor market puts the Fed in a “challenging situation,” he said. Because the Fed has cut interest rates by 1 percentage point compared with a year ago, rates are at a somewhat less restrictive setting that allows the Fed to “proceed carefully as we consider changes to our policy stance,” he said.
Giddy Over Rate Cuts
- As I type, gold is up $35 to $3,417.22 per ounce.
- The DOW is up 925 points, about 2 percent, to 45,701.00.
- The S&P 500 is up 999 points, about 1.5 percent to 6,468.91
- The Nasdaq is up 388 points, about 1.8 percent, to 21,486.66
Quotes above are as of 11:15 AM Mountain time.
Bond Market Reaction
The 30-year long bond yield is less enthused, declining only 4 basis points (0.85 percent) to 4.88 percent.
The 2-year note yield reacted much stronger, down 11 basis points (2.80 percent) to 3.686 percent.
One of the first things I do every day is look at bond market yield, especially the long bond.
At 4.88 percent, the yield is still near the upper end of its recent trading range. I will take a closer look at the technical patterns in a following post.
Risks to the Downside
I side with Powell regarding risks to the labor market.
In fact, I have been harping about jobs for quite some time, expecting the negative revisions that happened.
Related Posts
August 1, 2025: Payroll Disaster, Jobs Rise 73,000 but Massive Negative Revisions
There were 258,000 negative revisions in May and June.
August 5, 2025: Troubling Trends in Student Loans, Auto Loans, and Credit Card Late Payments
90-day late payment delinquencies are elevated and rising.
August 21, 2025: Continued Unemployment Claims Jump by 30,000 to New High Since Nov 6, 2021
The labor market is much weaker than most economists realize.
For specific details discussion of why we know this. please see QCEW Report Shows Overstatement of Jobs by the BLS is Increasing
Finally, please note that 5 Million People Have Exhausted All Their Unemployment Insurance Benefits
So, will rate cuts fix a weak labor market? We are about to find out, but my answer is no.
What kind of poor excuse for a market is it when it just rises and falls based on the manipulation of interest rates?
The Gambling Casino.
It’s a shot across the bow aimed at the rest of the human race (excepted the EU and the remnants of the British Empire which are ruled also by our (((rulers))).)
If they continue buying US Bonds and Treasuries and keep their reserves in dollars, then the Chinese, Russians, Arabs, and Indians will have acquiesced to being indentured slaves of the American Empire.
There is no other conclusion possible. Inflation is high and will get higher, meaning dollars will lose value ever faster. But (((we))) will create untold amounts of it to pay foreigners for their goods and services which we will use to wage war upon them.
So we’ll see now whether the rest of the human race consist of craven idiots. Or not.
The 10yr US bond yield is still moving in a symmetric triangle, but is near the tip. Something is about to happen in either direction. There are still 15 years remaining until the 60 year cycle peaks, so any decrease in yields would be for 6-12 months.
Within a month after Powell’s last rate cut, the 10 yr US bond yield headed higher. Powell wasted ammunition. So Powell may find himself in a similar situation where he follows yields set by the bond market only for it them to sharply reverse higher.
Interesting that we will have the dynamic of lower interest rates just as tariff inflation will start to kick in. Reminds you of how the fed switched gears in the mid 70s only to see inflation rise higher later.
So we have an economically illiterate president who thinks countries he applies tariffs to pay the tarrifs, and a guy who during his first term added 8 trillion dollars to the deficit, and continues to deficit spend during his second administration. He is not encouraging nor has he ever encouraged Americans to save money nor has he provided tax breaks for interest and dividends and yet continues to bully the Fed into lowering interest rates — as he did in his first term– which only really benefits the banksters. We have become nothing more than an America last economic opportunity zone where we have a president who is his intent upon facilitating another massive wealth transfer from ordinary Americans to Black Rock Vanguard etc.
Gigi: Epstein: no black list. Clinton and Trump didn’t pedo putas. Trump is agentleman. Clinton and Epstein: a customer and a pimp. Hunter pedo putas. The media: Salem, Salem putas !
D.C. admits most of the executive branch can’t pass its own audits and, occasionally, admits things like missing $21 T.
Is the Fed audited? Why should I expect anything other than the most larcenous behavior?
I just heard a clip of Powell saying tariffs will have a one-time effect on inflation, maybe or maybe not. I think Mish defined inflation sometime back as an increase in money and spendable debt; and he may have included something like in excess of available goods and services, not sure. The major point is product or service prices were not part of the definition. That being the case, measuring price changes is measuring a symptom of inflation, not inflation. Other things can and do affect prices such as supply, manufacturing costs and labor and transport for manufacture to dales point as examples.
If the above is true, Powell is flailing at the wind if he believes he can control prices altered by tariffs. I see it like treating a broken ankle with aspirin, it might help with the pain, but aspirin will do nothing to repair the ankle.
The problem is that there’s nothing the fed can really do with the Pedophile in Chief blatantly running the country into the ground Venezuela style. They could raise rates, lower rates, keep them the same. None of it matters when it’s clear the tariffs are illegal coercion and he has no intent of paying them back when that’s found in court.
Just today he confirmed that he plans to invade Chicago and New York in open violation of posse comitatus. What happens when we get that on top of him nationalizing business and deciding he can keep money the courts order him to pay back? A. Nobody does business with us, just like Venezuela. B. America falls apart like a skyscraper made out of matchsticks.
I agree with your assessment. I found this quote with reference to National Guard:
Another weakness in the Posse Comitatus Act arises from the law that allows the National Guard to operate in “Title 32 status.” In Title 32 status, a middle ground between purely state operations and federalization, Guard personnel are paid with federal funds and may perform missions requested by the president, but they remain under state command and control. That means they are not subject to the Posse Comitatus Act, even though they are serving federal interests.
https://www.brennancenter.org/our-work/research-reports/posse-comitatus-act-explained
Supposedly the DC police chief is in command, whether that is cover, optics or something else, who knows? But it might give legitimacy for the use of NG for policing. We can count on POTUS to push the limits of his constitutional powers and in my opinion, this is borderline.
With regard to running the country into the ground, I believe the local governing bodies of many areas of the country are way ahead of him.
found inflation definition from Mish:
My definition of inflation is an increase in money supply and credit with credit marked to market.
>Powell tells everyone we’re in a killer state of stagflation where we’re trapped between inflation and a dead job market
>The stock market goes up 1000 points
I’m starting to wonder if traders are just blind and deaf now
Imo know ones considers the big bubble of retired boomers when looking at employment numbers.
There is a larger group on citizens using goods and services who dont contribute. It throws things off.
And that will continue to get worse with the demographic crisis mounting and us driving away qualified immigrants who can, in fact, choose to go elsewhere. All while the fed counts boomers working at McDonald’s as real jobs.
A 4% Target rate for inflation has been discussed in the past. It made sense then, and even more now. It didn’t matter anyway, as the Central Banks wouldn’t comply with that thought in the least, and soundly rejected the idea, but with no rational, or financial reason, that made sense that I recall.
Ironically the thought has surfaced again in discussion here and there, and now at a time similar to the last time it came up. They claim that ultimately it adds more flexibility, but I would suggest that it has far more to do with the wording of the change, and how it will be applied in several unique situations and who has the right to ultimately approve the changes, if required? That’s where you need to make sure it’s buttoned up tight, or it will be ransacked every 4 Years!!
I certainly don’t know what’s the appropriate rate, or even if we should have one, but it clearly is a very powerful tool. Should we even be discussing such a tool at all? This seems to be a “Hot Potato” at the moment, so time will tell I suppose, if anything occurs at all with the rate in the future.
We need zero inflation, not 4.
I have bounced back and fourth myself. I seem to think 4% is sort of where we are at and have been for awhile, while trying to keep it at 2%. Maybe 4 is the new 2 or maybe 0% is the right target?
Powell’s announcement timing is about right … and sell the news. Earlier rates cuts would have made equity valuations only more historically overvalued and provided a foil for a possible alternative explanation for tariff-related consumer inflation … The Volcker-falling high interest rate; globalization; Chinese property bubble, US and Chinese deficit-spending; global central bank money expansion, US recurrent property bubble; and finally deglobalization-decoupling 1982 -2026 13/33 year macroeconomic cycle is about to have its first major global equity nonlinear drop.
JP bs. The banks are happy. SPY made a new all time high, but closed (?) < Aug 13 high. Next week SPY might close < July 31 high.
Got gold?
Given they never really fixed inflation as it is still not at their preferred level after eclipsing their level 3-4x for a few years, i vote they won’t really fix the labor market.
Time for the Fed Uncertainty Principle post…the only thing certain is that they’ll make a mess of everything since their haughty view that they can fix the price of the most important thing–credit/money–is provably incorrect.
Fix the price of everything for everybody with a 50% Discount/Rebate at retail sale. There’s the best FED policy possible. Play out the process of that policy and awaken!
You first. Open a dollar store and sell every item for 50 cents. Your sales will be astronomical!
I’ve been reading Victor Niederhoffer’s book recently, and after reading the chapter on financial and market oracles a few days ago.. the ridiculousness that speeches so full of caveats drive the markets is a dumbfounding realization.
Powell’s speech was all but a solid confirmation that the fed is going to sacrifice the dollar to protect the economy and jobs by lowering interest rate and causing inflation this year. It is only kicking the can down the road; it does nothing to address the root problem. I’m glad Powell is concerned about jobs, but that is like taking care of ketchup availability when there is no hamburger, he needs to be thinking about the economy. Our first and foremost problem is debt and deficit spending and lowering interest rates does nothing to solve that problem. It will encourage congress to expand rather than restrain federal spending, it will encourage malinvestment via less rigorous lending evaluation, it will exacerbate problems for people dependent on interest income, it will devalue the dollar making imports more expensive to buy especially coupled with tariffs, it will burden individuals along with federal, state and local governments with higher prices, and other items that do not come to mind right now.
Bottom line, there is no need to be worrying about the employment market as we have a recession baked in that includes shrinking employment and he cannot ameliorate it with lower rates or more QE. We have a spending problem the fed cannot improve by lowering rates or buying more government debt, that is like giving more liquor to an alcoholic. Trump is not going to fix anything with his tariff tantrums or his Big Beautiful Bill running up spending we cannot afford. Time is long past for tough love. Unfortunately, we cannot expect much from the mostly cowardly dastards we have in congress.
The feds only mandate should be to contain inflation not employment. Also their main reason for living is to be a lender of last resort, they have f’d that up also. Buying mbs etc,yield curve control, monetizing govt debt. the list goes on. The case to end them is a good one. Two percent inflation, I am not sure how they arrived at that. Who here wants their purchasing power to decline by 2% a year.
Back to bad news is good news, good news is bad news paradigm.
How did it develop? Could it parallel the great march of offshoring, and financialization to the hilt?
No, it’s good news is good news & bad news is good news.
If they would just dump currency from helicopters over blue cities they would not have to worry so much about jobs. Need to do it on a regular basis, say every Friday afternoon. The early bird gets the C note.
Of course AI will provide the necessary overproduction. Probably tomorrow. Or at the latest the day after tomorrow. Couldn’t be simpler.
Your sarcasm is telling, but a 50% Discount/Rebate at retail sale would resolve all of inflation, rising unemployment and macro-economic instability. New paradigms are always foolishness in the minds of the orthodox…until they are the answer to all of the seemingly unresolvable problems of the present anomalous paradigm. Consult history on that.
I think even the deliberately fake inflation data will show acceleration of inflation in the September data. If they cut inflation will accelerate even more. The wild card is if the courts rule against trumps legal authority to impose tariffs.
Powell appears very political when saying only now that labor looks weak. I agree Mish, he missed that boat long ago. The most important question now is whether his replacement will have the balls to fight inflation (raise rates; stronger dollar; reduce costs for consumer; help the average consumer in the long term) or will give in to high inflation like Powell did (help the rich by propping the market; keep government spending up and save politicians).
Giddy over a rate cut, that will only hopefully stave off a recessionary situation, and at best will keep things steady, from my view., is odd to me…
“Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” – JPow @ Wyoming.
https://www.cnbc.com/2025/08/22/powell-indicates-conditions-may-warrant-interest-rate-cuts-as-fed-proceeds-carefully.html
JPOW said he *may* adjust policy stance but the market is reacting like the local drug dealer said “free heroin for everyone!”
In any event it is a great day to sell calls, banked $2k today alone. Will buy them back when Trump opens his mouth and tanks the market. It would be extremely funny if Powell pulls a “PACO” and holds rates steady or even raises if inflation data is bad.
Goodnight the Dollar, Goodnight reserve currency, goodnight US.
https://www.advisorperspectives.com/dshort/updates/2025/08/21/margin-debt-finra-rises-new-record-high-july-2025
What could possibly go wrong?
Let’s see how much the money stock rose next Tuesday.
Now, it is Powell who has capitulated. I assume the heat was too much to take.
This one is a win for TACO and higher short-term stock prices, in addition to more countries giving in to the tariff threats.
The bond market will be the ultimate arbitrator.
At this point, what could possibly go wrong.
Don’t believe for 1 second the boxing style hype of The Grifter in Chief & Powell charlatan transitory chief. These two idiots are singing from the same hymn sheet, deliberately using inflation & corrupt economic figures to hide the collapse…… The route is different but the destination is the same….. COLLAPSE!