Powell Suggests Driving Backwards as $1 Trillion Disappears

Actionable Market Insights

Why This Report Matters

Fed Chair Powell just flipped its script—again. Less than a month after leaning hawkish, Powell hinted at abandoning the sacred 2% inflation target altogether. Yet markets are still trying to make sense of whether this is policy evolution—or policy desperation. Behind the scenes, U.S. labor data is being revised downward almost every month, while trillions in new fiscal spending rush through the system. Traders are asking: if the Fed is driving by the rear-view mirror, what happens when the road ahead suddenly bends? The answer may determine not just the next move in bonds and equities, but whether Bitcoin becomes the only true North Star.

U.S. Fed Funds (LHS) vs. # of Rate Cuts price in (RHS) - just a matter of time

Main Argument

Powell struck a slightly hawkish note during the Q&A at the July 30 FOMC meeting, with minutes released last Wednesday underscoring the Fed’s concern over tariff-driven inflation. At that press conference, he emphasized that the Fed had met its employment mandate but remained short of its inflation goal. Just two weeks later, inflation rose from 2.9% to 3.1%, validating the hawkish tone in hindsight. Yet, in a striking reversal less than a month later, Powell’s Jackson Hole speech signaled that the Fed should effectively abandon its 2% inflation target, shifting the focus instead toward potential labor market weakness.