Thoughts on the Market

Breaking Down the Fed’s New Course

20 snips
Aug 28, 2025
Michael Gapen, Chief U.S. Economist at Morgan Stanley, shares expert insights on the implications of Chair Powell's remarks from the Jackson Hole meeting. He discusses the Fed’s shift toward a more cautious monetary policy, emphasizing the delicate balance between managing inflation and supporting employment. Gapen highlights the potential for gradual interest rate adjustments, considering the uncertainty of economic conditions and recession risks. His in-depth analysis underscores the critical nature of upcoming policy decisions.
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INSIGHT

Fed Shifted To Risk Management

  • Michael Gapen sees Powell's Jackson Hole comments as a shift to risk-management, reflecting increased concern about labor market downside.
  • The Fed signaled readiness to adjust policy and likely to deliver a series of cautious moves rather than a single large cut.
INSIGHT

July Jobs Report Changed Fed's Focus

  • The July employment report shifted the Fed's focus toward downside labor-market risk and away from assuming slow payroll growth is benign.
  • That data prompted Fed officials to weigh labor-market protection alongside inflation risks.
INSIGHT

Language Implies Multiple But Cautious Moves

  • The explicit phrasing in Powell's speech implies the decision to change direction is largely made and will likely involve multiple moves.
  • But Powell's 'proceed cautiously' language signals markets should not expect an immediate large cut like last year.
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