Jackson Hole Reaction: No doves allowed, ECB hike expectations rise, Oil slumps, Gold lower, Bitcoin dips below $21k

US stocks declined after Fed Chair Powell delivered a short and clear message that they will continue to raise rates and hold them at a higher level until they are confident inflation is under control. The market reaction was for rate cuts to get priced further out and a minimal boost for additional pricing to get done before the end of the year.  Powell is not budging on having restrictive policy and that should mean the economy will steadily weaken going forward.  Powell drove home the point that when they are done raising rates that we should expect them to stay there for a long period of time.  The terminal rate may need to be higher, but for now it seems we might not need to worry about rates rising into the 5% range. There was no dovish pivot, but it seems financial markets are getting close to fully pricing in the remaining Fed rate hikes. Downside for equities may remain limited if inflation pressures continue to ease sharply.       

Pre-Powell Speech

There was no calm before the Jackson Hole speech storm.  The euro surged after reports that some ECB officials want to discuss a 75 basis-point rate increase in September.  A wrath of Fed speak also confirmed the data-dependency stance for determining the magnitude of rate hikes. Fed’s Bullard, one of the more hawkish members, noted that pulling rate hikes forward is appropriate and that the pace of rate increases matters. Fed’s Bostic stated that if the data is strong, they could lean towards a 75 basis-point hike next month and that if data is softer like the PCE today, he will lean towards a half-point increase.  Bostic added that we are not in a restrictive range yet which is probably 3.5-3.75%, but that they hope to get there by year end. Fed’s Harker said that the Fed must move ‘methodically’ to a restrictive stance. 

Powell’s Jackson Hole Speech

This was an easy Jackson Hole speech.  Fed Chair Powell clearly explained in order to bring down inflation, we should expect higher rates, slower growth, and a softening labor market.  Powell did not say anything to change the data-dependency over what will lead to shifts in the pace of tightening but he did warn against premature loosening.  Powell noted it will be appropriate at some point to slow the pace of tightening, but that doesn’t seem like it will happen anytime soon.  The 2-year note yield rose 4.1 basis points to 3.407% and will probably have another 30 basis points to go over the next couple FOMC decisions. 

US Data

The US consumer is weakening and hopes for a robust third quarter rebound might be overdone.  Personal income rose 0.2%, much less than the 0.6%, while spending increased by 0.1%, well below the expected 0.5% consensus estimate.  July headline inflation came in at -0.1%, while the year-over-year fell from 6.8% to 6.3%. 

The August University of Michigan final readings also showed inflation expectations fell more than expected, with the 1-year outlook dropping to 4.8% and the 5-10 year expectations ticking lower to 2.9%

This round of economic data along with all the Fed fireworks still suggests it will come down to the September 13th inflation report to determine if they will deliver another 75-basis point rate increase or only a half-point one.   


Crude prices went on a kiddie roller coaster after softening US economic data, a Jackson Hole speech that has the Fed committed to restrictive policy that will eventually get this economy into a recession. Despite today’s weakness, the oil market is still tight and a break below the $90 level is not warranted.   The next big in crude will likely be determined by the demand side and that will draw extra attention to China’s factory activity data.   

It is important to pay close attention to the political pressure growing in Europe to do something about the global energy crisis.  The Czech Republic is expected to call an extraordinary meeting of energy ministers to combat the surge in power prices.  The pressure is on for decisive action and that could lead to emergency measures that might cap the move higher with energy prices. 


Gold prices declined as Treasury yields rose after Fed Chair Powell stuck to the hawkish script.  The short-end of the Treasury curve rose as investors anticipate no dovish pivots for the rest of the year.  Gold is vulnerable here as the Treasury yields could gain further momentum next week if the labor market remains healthy.  The risks of one last major move lower remains for gold, but then prices should stabilize quickly as financial markets will be more confident in pricing in the remaining Fed rate hikes. 


Bitcoin weakened after Fed Chair Powell didn’t blink with his reiteration that the Fed will tighten policy to bring down inflation.  Risky assets are struggling as Powell’s fight against inflation will remain aggressive even as it will trigger an economic slowdown. Bitcoin is tentatively breaking below $21,000 and momentum traders will wait to see if the risk aversion sends prices towards the $20,000 level.  

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya