CICC: It is not advisable to over-interpret Powell's "pigeon"

According to the China Gold Research Report, the speech of Federal Reserve Chairperson Powell at the Jackson Hole meeting was regarded by the market as a "dovish" signal of monetary easing. However, we believe that Powell's remarks did not give strong guidance on the durability and magnitude of interest rate cuts, but only explained to the market the "response function" of the Federal Reserve's policy - that is, the Federal Reserve tends to lower interest rates when employment risks outweigh inflation. However, under significantly higher tariff rates and tighter immigration policies, employment and inflation risks coexist, and if inflation risks exceed employment, Powell can still use the same "response function" to stop interest rate cuts. Instead of viewing Mr. Powell's speech as a starting point for a series of easing, markets should recognise the challenges to monetary policy when employment and inflation targets are at odds. There will be no real monetary easing if tariffs and immigration push up "stagflationary-like" pressures further and put the Fed in a bind. Risk appetite is likely to decline and volatility will increase.