- On 23 August, at Jackson Hole, Jerome Powell said the time had come for monetary policy to adjust, confirming rate cuts for September.
- After the toughest hiking cycle in decades, the easing cycle was beginning; the change affects the cost of debt, asset prices and exchange rates.
- It is worth reviewing the terms of debt, the make-up of the portfolio and the role of cash, bearing in mind that the exact timing can change.
On 23 August 2024, at Jackson Hole, Federal Reserve chair Jerome Powell said the time had come for monetary policy to adjust. With those words he confirmed rate cuts for September and closed a stage in which the US central bank had kept money expensive to fight inflation. It was a message markets expected, but official confirmation always brings clarity.
When the Fed chair speaks on an occasion like this, markets hear every word. It is not a matter of protocol: his statements guide the decisions of millions of investors, banks and companies around the world, because the dollar and US interest rates are a global benchmark. Understanding what was said and what it implies helps avoid overreacting to headlines.
What Powell said
Jackson Hole is the annual gathering where central bankers set out their views, and it was there that Powell gave the expected signal. It is a forum in which the great economic themes are anticipated, which is why its speeches are scrutinised closely.
To speak of ‘adjusting’ monetary policy is a careful way of saying that rates are going to fall. Central bankers take great care over their language, because every nuance can move markets. That Powell was so clear indicated that consensus within the institution had firmed up, although it did not resolve doubts about the pace of cuts or how far they would go. That is why, rather than memorising each phrase, it is better to retain the general direction they set.
A new cycle
After the toughest hiking cycle in decades, the easing cycle was beginning. A change of direction in rates in the world’s largest economy affects the cost of debt, asset prices and exchange rates. When money becomes cheaper in the United States, pressure also eases in other markets, the euro area included.
Rate cycles last years, and each phase benefits some and hurts others. Those with variable-rate debt see their payments ease; those with savings in deposits see returns decline. Those who invest in fixed income may notice the effect on bond prices. None of these effects is instant, but all begin to be priced in before they occur. Anyone who waits for the change to show up in the accounts is usually late in adjusting their planning.
What to review
Financing and investment decisions had to adapt to a new scenario. It is worth reviewing the terms and conditions of debt, the make-up of the portfolio and the role of cash, bearing in mind that the exact timing of cuts can change. Reviewing is not the same as acting: sometimes the conclusion is that nothing needs to change. What matters is that the decision, if there is one, rests on one’s own data and not on inertia.
A good approach is to order the maturities coming up, calculate how much the cost of financing would change under different scenarios and check that the portfolio remains aligned with the goals and time horizon of each person or company. This note is general information and not investment advice. An adviser can help to see the full picture before decisions are taken. A simple review calendar, with fixed dates, prevents decisions from always being taken under the pressure of current events.
A change of cycle is prepared for before it shows in the accounts.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
