The Breakdown - Jackson Hole Retrospective: Powell’s Fed Legacy

Episode Date: August 20, 2025

As Jerome Powell prepares for his final Jackson Hole address, we look back at how his speeches at the Fed’s most important annual gathering have shaped the past six years of monetary policy. From ��transitory” inflation to the Volcker comparisons of 2022, Powell’s Jackson Hole moments trace the story of his tenure and the economic landscape we’re living through today. Brought to you by: Grayscale offers more than 20 different crypto investment products. Explore the full suite at grayscale.com. Invest in your share of the future. Investing involves risk and possible loss of principal. To learn more, visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Grayscale.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ -- ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.grayscale.com//?utm_source=blockworks&utm_medium=paid-other&utm_campaign=brand&utm_id=&utm_term=&utm_content=audio-thebreakdown)⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/@TheBreakdownBW Subscribe to the newsletter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://blockworks.co/newsletter/thebreakdown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownBW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world. What's going on, guys? It is Tuesday, August 19th, and today we are doing a Jackson Hole retrospective and look forward. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly. Breakdown Pod. All right, well, today we have something a little different. We are deep in the summer doldrums, and while there's still plenty of going on, a lot of the

news is hyper-fixated on whether the Bitcoin Treasury Company bubble is bursting. People's opinions are fluctuating wildly from day to day, and there's only so much of that market coverage, especially in the absence of actual news, that we can actually do. Instead, with Jerome Powell quickly becoming a lame duck at the Fed, I thought it would be interesting to take a look back at his tenure as Fed Chair. And because it's the end of summer, that means it's time for Jackson Hole, the most important central banking event of the year. Each year in August, central bankers descend on rural Wyoming

to talk policy, economic theory, and monetary strategy. Jackson Hole caps off the year in central banking, and the Fed chair typically uses their keynote speech to set the stage for the year ahead, often marking turning points in monetary policy. Curiously, this year's event takes place just before the Fed is expected to recommence their cutting cycle. And these are the exact same conditions that were at play this time last year. The theme for the event also says a lot about the core issue on the minds of central bankers. This year, the theme is labor markets in transition, demographics, productivity, and macroeconomic policy. Given how AI labor disruption in the global retirement wave are shaping everything in macro, that seems like an extremely important topic

to get to grips with. Powell is set to speak on Friday morning for what will be his final keynote address at Jackson Hole. It's unclear how much guidance he'll give the market on what to expect in the year ahead, perhaps he'll have some pearls of wisdom to offer his successor. For this episode, we're going to look over the narrative, the speech, and the ramifications around Powell's past appearances at Jackson Hole. I think these moments do a really good job of telling the macro story of how we got here and how the Fed shaped the economic landscape we're now experiencing. Next week, we'll cover Powell's final speech, but for now, this is the Jackson Hole retrospective. The early theme of Powell's tenure was steady as she goes. In 2018,

Powell inherited Janet Yellen's policy of normalization. The Fed had been slowly hiking interest rates from 2016, steadily exiting ZERP and unwinding the emergency policies from the financial crisis. During this era, Powell's Jackson Hole speeches focused on numerous themes that still echoed today. He was concerned about the budget deficit, noting that fiscal spending was unsustainable, and would become more so as interest rates rose. He also highlighted that the Fed had no roadmap. Powell openly questioned the way that economic data was presented, particularly around things like the unemployment rate that were traditionally used to calibrate policy. His made-in speech in 2018 was entirely focused on the unknowable neutral interest rate and neutral rate of unemployment,

an equilibrium state that signified neither overheating nor restriction in the economy. These levels, which are referred to as the stars in economic literature, are unknowable at the best of times, and coming out of almost a decade of unconventional policy, they were particularly unknowable then. What followed for the next few years was a repeated pattern of overshooting and readjusting. In 2018, the Fed hiked four times before turning around to cut slightly in the summer of 2019. Throughout the process, the Fed was conductive quantitative tightening, allowing the Treasury securities they bought during the previous rounds of QE to roll off their balance sheet.

This eventually led to the repo crisis in September 2019 when a lack of liquidity caused wholesale interest rate markets to seize up. While the Fed didn't cut interest rates, they did intervene in the market with emergency liquidity. Six months later, though, the pandemic was in full swing, and the world had begun to shut down. Powell led the emergency operation that's well documented in Nick Timmeros' book, Trillion Dollar Triage. rates went back to zero, liquidity was pumped into the system, and plans to normalize monetary policy went completely out the window. Throughout 2020, Powell's only role was to boost confidence.

That May, he went on 60 minutes to reinforce that the Fed had indeed printed money, and to convince the world that this would be enough to save the economy. In 2021, Powell introduced the most infamous mistake of his tenure, transitory. He described the rising inflation as the world opened up as transitory and insisted the Fed would keep rates at zero to avoid snuffing out the recovery. By that November, it was pretty clear that transitory was an incorrect assumption. Powell abandoned the phrase and started foreshadowing rate hikes to come. 2022 saw the sharpest hiking cycle in Fed history, with nine rate hikes across the first four

meetings of the year. And that brings us to Jackson Hole in August of 2022. Fed funds were at 3.25% up from around 0.25% at the beginning of the year. Inflation was 8.3%, only slightly down from its peak of 9.1% in June. The economy looked like it was plunging into a stagflationary recession, but the first signs of cooling inflation had led to a sharp rally in the stock market. After plunging all year, the S&P 500 was up 15% in July. The mythos around Powell had been building for several months. The reporting over the summer was that Powell had knowingly adopted the mantle of 1980s Fed Chair Paul Volker, determined to hike rates to stay inflation even if it triggered a recession. Powell had delivered

two triple rate hikes in a row at the June and July meetings, and he was garnering a reputation for making the tough but necessary decisions required of him. Heading into Jackson Hole, there was a sense that the inflation problem was over. Although inflation was still running above 8%, the market rejoiced on the first sign that rate hikes were dealing with the issue. There was a widespread belief that the hiking cycle would be over soon as the Fed wouldn't want to cause unnecessary pain to the labor market. Wall Street was heavily front-running that sentiment, driving the biggest stock rally of the year.

Powell's speech quickly disabused everyone of the belief that the Fed was about to back off. There is a perhaps apocryphal story that Powell tore up his note. the morning of the speech, instead opting to deliver a terse brief address. He warned the markets that, quote, while higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. There was, in this speech, zero ambiguity. Powell was saying that the inflation fight wasn't over and that the Fed was willing to cause some pain to end it. Powell highlighted that, quote, our responsibility to deliver price stability is unconditional, and that price stability is the bedrock of our economy. A rising out of that speech was

the notion that there's no point in backing off to save the labor market, because price stability is a prerequisite for a healthy labor market. Powell said, these are the unfortunate costs of reducing inflation, but a failure to restore price stability would mean far greater pain. This was the line in the sand moment for Powell and the Fed followed through for the remainder of the year. At the next meeting in September, Powell delivered another triple hike the third in a row. There was another triple hike in November and a double hike in December. The Fed kept hiking throughout the first half of 23, with the Fed funds rate winding up three percentage points higher than it had been during Jackson Hole. Today's episode of The Breakdown is brought to you exclusively by Grayscale.

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Powell cemented the idea that slowing inflation wasn't enough and that the Fed would keep fighting inflation until it was back to the 2% target. Markets have absolutely detonated on this speech, cutting the rally short and reversing hard. While the S&P 500 bottomed in October, this was the final straw for a crypto market that couldn't cope with rising interest rates. A few months later, of course, the FTX collapsed to bring the cycle to a final conclusion. The rebound was jagged and rough, but by mid-20203, the S&P 500 had almost fully recovered from the previous year's drawdown, and Bitcoin had once again started to climb the wall of worry.

By August of 2023, inflation was no longer an imminent threat and more of a lingering problem. The stock market and the economy had seen a few quarters of tentative recovery. Powell's Jackson-Hull speech was something of a report card on the inflation fight, rather than a fiery declaration that the markets needed to get with the program. Powell spent the first half of the speech winding through various measures of inflation, trying to give a fulsome account of where the remaining trouble spots were. Still, the theme of the speech was uncertainty. Powell had expected rising unemployment and maybe even recession as a result of Fed policy,

but that wasn't the economic picture. Instead, the U.S. economy had sputtered along with moderate growth and unemployment had never become a major problem. The signature quote to the extent that there was one was Powell stating, as is often the case we are navigating by the stars under cloudy skies. He then explained that the Fed would continue the inflation fight, but was now more attentive to risks on both sides of the dual mandate. Over the following months, the financial media became obsessed with the notion of a soft landing. The Fed was on hold, but inflation continued to moderate. it seemed as though Powell had pulled off the nearly impossible, slaying inflation without causing a recession. Now, to be clear, this was a media narrative rather than the Fed's own position.

During press conferences, Powell was very careful not to declare victory. Still, FOMC meetings came and went with no policy change and slow but steady moderation on inflation. Markets didn't seem to mind with stocks and Bitcoin putting on a convincing rally to end the year. Powell was navigating under cloudy skies, but appeared to be heading in the right direction. Now, as Jackson Hole approached in 2024, central bankers were facing a conundrum. The Fed had held rates steady at 5.5% for an entire year, and there had been no further progress on inflation. It had been stuck above 3% since the previous summer. While the official narrative was that Fed policy works with long and variable lags, it was

starting to get a little ridiculous. It seemed that the Fed was entirely toothless and was merely waiting around for inflation to fix itself. The topic of last year's meeting then was reassessing the effectiveness and transmission of monetary policy. The Fed wanted to know why holding rates at such a high level hadn't reliably brought inflation back down to 2%. Still, there was no alarm in the air. The topic was largely addressed as an academic exercise. Powell reflected this notion during his speech, stating, my confidence has grown that

inflation is on a sustainable path back to 2%. At the time, the last three inflation reports had seen inflation fall from 3.3 to 2.9%, meaning inflation was back under 3% for the first time since 2021. Powell's message was clear. Rates had been on hold for long enough, and there were was change in the year. He said, The time has come for policy to adjust. The direction of travel is clear and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks. The speech was seen as the moment that Powell abandoned the single-minded focus on inflation and rebalance the Fed's mandate. At the following meeting in September, Powell delivered

a double cut, the first since 2020. The labor market was showing moderate signs of weakness, but the major narrative was that the Fed rates should follow inflation lower to avoid accidental policy tightening. This was a highly academic reason, but led some to believe this policy was a politically motivated rate cut. In the fullness of time, that group would come to include the president. Fast forward to a year later, and inflation has fluctuated between 2.3 and 3%. It's currently back on the upswing, and Powell's forecast of a sustainable path back to 2% didn't come to bear. The Fed ended up cutting four times to end last year before halting the cutting cycle at 4%. The lack of further progress has been frustrating, and the Fed is once again

facing the risk of stagflation. To make matters worse, at least for him, Powell has experienced the most antagonistic administration and living memory. President Trump has dubbed the Fed chair too late Powell and repeatedly called him stupid for not cutting sooner. Added to that antagonism, the Fed has dealt with on-again, off-again tariff policy that has made forecasting a fool's errand over the past six months. Powell will be replaced in May, so Friday will be his final Jackson Hull speech. Commentators are unhelpfully pointing out that Powell has three options. One, calling out to slow down in the labor market and signal that the Fed will cut interest rate soon. Two, throw cold water on the chances of a cut while pointing at rising inflation.

Or three, rejecting both options, staying noncommittal and waiting for more data. Markets are currently pricing in an 83% chance of a cut in September despite inflation concerns, so Powell would be picking a huge fight if he rejects that signal and talks down the chance of cuts. Former Fed Vice Chair Richard Clarita thinks that Powell won't want to get ahead of the decision. He commented, the Powell I know wants to be data-dependent and not make a decision before he has to. If they do cut in September, there will be a lively communication discussion.

What are we communicating? Is this one in wait, the first to five or six? Even if they want to cut the communication could be a challenge. Market analysts are also expecting a very non-committal speech from Powell. Jonathan Pingle, the chief U.S. economist at UBS Security said, even though I expect him to generally point to lower rates at the next meeting, I do expect him to precondition it on a very data-dependent message. I don't think he's going to lock it in. Capital Flows noted that the major risk probably comes from doing too much.

Powell is working with an environment where growth fears are demanding a cut, but the underlying risk is inflation. Flows wrote, this time the danger is not credibility collapsed from doing too little, but a policy error of easing into sticky inflation. However, he added, the wildcard is the fact that Powell is going to get booted next year, and so in one sense no one really cares what he has to say. At the moment, the markets seem jittery, with many analysts concerned that Powell is about to take September rate cuts off the table.

I have no insight into Powell other than watching him throughout this entire period that we've just discussed as part of this show, but I certainly tend to agree with Clarito in the sense that when in doubt, Powell tends to take the path that gives him the most optionality. I don't really see a world where Powell preempts the FOMC meeting by puffing up his chest with the hawkish speech. For the same reason, I don't expect Powell to give strong guidance towards a cut. There's nothing much to be gained by validating what the market is already pricing in and encouraging it to go even further. Instead, I expect Powell to say as little as possible, walking the tightrope between the tightrope between, doveish and hawkish. The theme of the event is labor market's in transition so he can highlight the weaknesses of the labor market as a reason to ease policy, but he can also mention the risks

of rising inflation to keep expectations well anchored. Powell's entire tenure has been cautious and hedged, and it doesn't really make sense to me why there would be any stop to that this week. Ultimately, there's no real need to commit to a single direction, even though Jackson Hole is traditionally the pivot point for Fed policy. To torture this analogy a little further, Powell's skies are more cloudy than ever, and I kind of just expect his Jackson whole speech to reflect that. Anyways, it will be an interesting one to watch. Certainly, we will report on what was said at the beginning of next week. For now, though, that is going to do it for today's breakdown. Appreciate you listening as always, and until next time, peace.