Kenny Rogers said it best.. “You’ve got to know when to hold ‘em, know when to fold ‘em. Know when to walk away, and know when to run. You never count your money when you’re sittin’ at the table. There’ll be time enough for countin’ when the dealin’s done…”
The moment Powell sat down at the proverbial poker table last Friday at Jackson Hole, he could clearly read the room…
The loudest comments were acknowledgements of the rising employment risks, how tariff effects are expected to accumulate in the coming months, and the shifting balance of risks that may warrant adjusting policy. What this essentially acknowledges is that his dual mandate equilibrium is now off-kilter, and the risk of job deterioration has become the greater focus…
He may have reflected on Kenny’s lyrics that the secret to surviving is knowing that every hand can be a winner, and perhaps also a loser. Throwing away his “hold-the-line” hand might have felt like a losing move to Powell at first glance. But in doing so, he would not only mitigate the growing downside risks in the labor market, he’d also send a reassuring signal to the markets. After all, we’re only talking about 25 basis points here, not 150. The consideration is we’re not going all-in on one move, there is still time to see how the rest of the hand develops beyond this one Fed meeting… Whether the cards he inevitably plays turn out to be winners or losers remains to be seen.
One thing’s for sure, the stakes are rising. Having held the majority of Friday’s improvement, our next big milestone arrives this Friday as we receive PCE, which is the Fed’s preferred measure of inflation. Then, we have another jobs number a week later (Sept 5th), and CPI (Sept 11th). As Kenny said, “There’ll be time enough for countin’ when the dealin’s done…” Until then, the market will continue to place bets and watch for any signals that could give away Powell’s hand… Just remember, in the game of poker, it’s not always about the cards, but the strategy with which we use the hand we are dealt. Let’s just hope for an Ace on the turn…
10yr: 50-day moving average held as support (4.33%), while the downward trend line put a bottom for resistance (4.25%). Expect 4.30% as a pivot zone while the market likely churns within this range leading up to Friday’s PCE release.