As usual in recent years, the world’s financial markets reacted strongly to the proceedings of the 2025 Economic Symposium hosted by the US Federal Reserve in Jackson Hole, Wyoming, from 21 to 23 August.
The annual gathering brings together major central bank leaders, economic experts, specialised journalists, and government officials from around the world for a series of seminars to discuss current economic policies and concerns. This year’s theme was “Labour Markets in Transition – Demographics, Productivity and Macroeconomic Policy.”
What the financial markets most awaited were the opening remarks by Federal Reserve Chair Jerome Powell and whether – directly or implicitly – he would signal the direction of US monetary policy. Would the Fed tighten or loosen its policy? Would it raise or lower interest rates?
As the meeting convened, the UK newspaper the Financial Times featured a witty piece in which the authors wrote the keynote speech they hoped they would hear from Powell. The “speech” addressed “two simple topics” – the “first is cutting interest rates. The second is cutting the bullshit.”
The latter point reflected the hopes of commentators that this time round the Fed Chair would speak in clear and straightforward terms, instead of hiding behind technical jargon and obscure code words.
Powell did not disappoint his audience. He spoke of the risks of inflation that could drive it above the Fed’s stated two per cent annual target and of downside risks to employment. He attributed inflationary risks to the tariff increases imposed by US President Donald Trump’s administration. However, his remarks suggested that the inflationary spike was a one-off adjustment.
Meanwhile, the labour market faces some complex challenges. Restrictions on immigration are expected to reduce the labour supply across various occupational categories. At the same time, labour market data are giving mixed signals, pointing both to potential increases in unemployment and to rising wages.
Caught between the risks of higher inflation and slackening employment, Powell seemed inclined to prioritise the latter. A continued drop in employment would mean slower economic growth and the possibility of a recession if the current downward trend persists.
After eight months of anticipation, Powell thus seemed to have delivered what the markets had desired: an interest rate cut. While observers initially expected a reduction of 25 basis points (a quarter of a percentage point) from the current target range of 4.25 to 4.5 per cent, the probability of such a move at the upcoming Fed meeting has now risen above 75 per cent.
However, the decision remains contingent on two key reports that will be released beforehand, one on inflation and the other on employment. Should the former prove more concerning than the employment data, the rate cut that the markets are hoping for may not materialise.
Powell was greeted with a prolonged round of applause as he went up to the podium to deliver his 25-minute speech this year. This was an unusual moment for such a traditionally conservative and technocratic gathering and one that has convened in the same Wyoming resort town every year for the past four decades.
It is hard to say what inspired the applause. Was it because this was Powell’s eighth and final address to the annual meeting? Was it an expression of solidarity with the Fed’s resistance to the White House’s attempts to undermine its autonomy, which have ranged from rebukes and threats to dismiss the chair to a declared intention to remove one of its female members on the grounds of alleged irregularities in her mortgage?
Or was the applause in recognition of Powell’s broader record, despite harsh criticisms of his failure to respond more swiftly to post-Covid inflation? Were some of the attendees simply going along with the mood of others in the room?
There are a few weeks to go before the Fed takes its decision on interest rates in September. But the markets are already celebrating their likely direction by posting gains in their indexes. Meanwhile, while one issue stood out at Jackson Hole this year, another was noticeable by its absence.
The former, raised by officials from Japan, Europe, and the Bank of England, had to do with the challenges of ageing labour forces, which threaten the supply of workers, productivity, and savings. Labour-market pressures have been further compounded by restrictions on migration, often driven by populist and xenophobic agendas.
As European Central Bank President Christine Lagarde pointed out, even though migrant labour in Europe constitutes less than 10 per cent of the workforce, it accounts for half of the labour force’s growth.
As for the matter that did not receive much attention in Jackson Hole this year, this was the impact of interest-rate cuts on the developing countries. In previous articles in Al-Ahram Weekly addressing the impacts of the global interest rate cuts in 2019 on the developing economies, I called for the adoption of integrated policies on savings, investment, production, and employment. I cautioned that if such policies are not implemented, falling interest rates could become as detrimental as rising ones.
We must not overlook how global declines in interest rates have fuelled borrowing sprees and the subsequent rise in debt across government, corporate, and household sectors, because insufficient attention had been paid to exchange-rate volatility and sudden drops in foreign-currency liquidity. Moreover, this has been accompanied by surges in speculative “hot money” inflows, attracted by artificially high domestic interest rates propped up by artificially stable exchange rates.
It would be wise for policymakers to revisit the lessons of today’s debt crisis in order to guard against another one tomorrow.
This article also appears in Arabic in Wednesday’s edition of Asharq Al-Awsat.
* A version of this article appears in print in the 28 August, 2025 edition of Al-Ahram Weekly
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