The Federal Reserve’s (Fed) annual gathering in the Rocky Mountains is usually a time for central bankers and their wonky friends to kick back, discuss a few complicated economic topics and then go for a hike in the shadow of Grand Teton.This year, the Fed’s Jackson Hole symposium, which wrapped up Saturday, was at times a tense affair and drove home how difficult the path ahead is for the US central bank.

On Friday, Chair Jerome Powell used his keynote speech to signal the Fed is headed for an interest-rate cut as soon as its next policy meeting in September. Yet there are clear divisions among policymakers over whether that’s the right call. Powell, himself, noted the economy has handed Fed officials a “challenging situation”.Policymakers are grappling with inflation that’s still above their 2% goal — and rising — and a labour market that’s showing signs of weakness. That unnerving reality, which pulls policy in opposite directions, is made worse by a high degree of uncertainty about how each of those factors will evolve over the coming months.

“We’re getting some cross-currents and it’s in a difficult environment,” Chicago Fed President Austan Goolsbee said in an interview on the sidelines of the conference. “I always say the hardest job the central bank has is to get the timing right at moments of transition.”The conference also highlighted the political pressures weighing on the Fed. Those are likely to intensify in coming months as President Donald Trump looks to put his stamp on what may be the most prominent federal institution to have so far escaped his overhaul attempts.

As Powell delivered his speech Friday morning, Trump said he would fire Fed Governor Lisa Cook if she didn’t resign over recent allegations that she committed mortgage fraud. It’s the latest attempt by the administration to pressure the Fed from multiple angles as Trump relentlessly pushes for lower interest rates.Security for the event was noticeably heightened compared to recent years, adding to the tension at the gathering. Officers from the Fed Police, US Park Police and Teton County Sheriff’s Office, some in military-style fatigues and carrying weapons, were a constant presence.

Earlier Friday morning, officers had to remove one person, the Trump-backer and Fed gadfly James Fishback, after he confronted Cook in the lobby of the lodge and shouted questions about the mortgage controversy.

Rate path

Powell, in what was likely his final Jackson Hole speech at the helm of the Fed, detailed the cloudy signals coming from the economy.While the effect of tariffs on prices is now visible, there are still questions about whether that will reignite inflation in a more persistent way, he said. He called the labour market’s current status — with both falling demand for, and declining supply of workers — “curious”.

Even with those uncertainties, Powell opened the door to a rate cut at the Fed’s Sept 16-17 meeting, though it wasn’t as clear a signal as at last year’s conference. Then, the labour market was deteriorating but inflation worries had receded, and many policymakers shared a desire to cut soon. The backing is not nearly as strong this year.

Recent data have shown inflation has stalled above the Fed’s 2% goal, with some measures indicating that price pressures may be spilling over to products and services not directly impacted by tariffs. Meantime, while hiring has slowed significantly over the summer, other labour market indicators, like the low level of unemployment, paint a more stable picture.Without much clarity on how the economy will unfold, disagreements over how to proceed are festering among policymakers. Already, two governors dissented at the Fed’s July meeting, when officials didn’t cut rates. If they do cut in September, others may dissent in the opposite direction.

Policy disagreements could grow in the coming months as Trump names new officials to vacancies at the Fed and Powell’s term as chair ends in May. The president has already tapped Stephen Miran, who chairs his Council of Economic Advisers, to fill an open slot on the Fed board that expires in January.

Under pressure

The discord among Fed officials comes at a time when the central bank is facing intense scrutiny from the White House. The topic seeped into conversations over coffee, during meals and in between sessions, even if there wasn’t much outright discussion of it during official conference proceedings.

Karen Dynan, an economics professor at Harvard University and frequent attendee of the conference, said she wasn’t surprised that central bankers didn’t want to wade into conversations about politics. Still, she said the conference set an example of how big-picture economic issues should be approached.

“This year it feels particularly meaningful that we have a bunch of papers that are grounded in good economics done by people who are prominent experts,” Dynan said. “These are not problems that can be solved by thinking about one’s intuition or talking to just a circle of people around you — you really need this sort of expertise.”

A new framework

One issue that received less attention was the new framework Powell unveiled in his speech.The document, which will guide policymakers as they pursue their inflation and employment goals, is the culmination of a months-long review of the previous one, implemented in 2020. The new strategy removes some of the language that more narrowly focused on the pre-pandemic challenge of persistently low inflation.

It’s a return to basics and sets the Fed up to more clearly focus on its mandates of maximum employment and stable prices, said Carolin Pflueger, associate professor at the University of Chicago Harris School of Public Policy.In his remarks, Powell “emphasised that his job is inflation and unemployment, and that can only be achieved within an independent Fed,” Pflueger said. “I think people appreciate that.”

Global impact

That appreciation became apparent when Powell was greeted Friday morning with a standing ovation from economists and policymakers from around the world — and not for the first time this year.For them Fed independence is not only a matter of principle but also practicality, since decisions taken in Washington inevitably come with consequences that spread far beyond.

The euro strengthened by 1% against the dollar following Powell’s remarks, adding downside risks to euro-area inflation that’s already seen falling to 1.6% next year.“If a cut does come and reflects slower US growth, that probably means slower growth for them given the size of the US,” Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics and the former chief economist at the International Monetary Fund, said of the euro area and other economies.

Source: Theedgemarkets

Strategic Hedging Becomes Strategic Advantage

Gold’s hopes for an aggressive cut in the Fed’s federal funds rate, the associated decline in Treasury bond yields, and the weakening of the US dollar have not yet materialised. The Fed is likely to ease monetary policy in September. However, it may then pause again. Its slowness is bringing investors’ interest back to the greenback.

Clouds are gathering over the precious metal due to Donald Trump’s efforts to end the armed conflict in Ukraine. The start of hostilities, followed by the West’s freezing of Russia’s gold and foreign exchange reserves, was the starting point for the Gold’s rally. Since February 2022, gold has risen 1.7x and reached a record high of more than $3,500 per ounce in April. The rally was driven by de-dollarisation, active buying of bullion by central banks, and increased demand for ETFs.

In the second quarter, central bank activity in the precious metals market declined significantly, and capital flows into specialised exchange-traded funds slowed. Without these advantages, XAUUSD can forget about recovering the upward trend. However, the favourable external background in the form of monetary stimulus from the Fed, lower Treasury yields, and a weaker US dollar in the medium term will give gold a boost.

The gold chart clearly shows consolidation since April, with the price right in the middle of the 12% range from peak to correction lows. This tedious five-month movement to the right is likely to end in the coming weeks, as August often marks the start of major trends in gold. The duration of consolidation is often directly proportional to the strength of the breakout.From a technical analysis perspective, given the accumulated overbought condition, the downside potential is huge – up to $3000 or even $2200 per ounce. However, the upside potential is no less impressive: $4600 in an extreme bullish scenario, including the Fed switching to a mode of absolute softness.

Source: ACTIONFOREX

Retail spending levels rose 0.5% in the June quarter, beating expectations. Retail sector conditions remain tough, but we are starting to see signs of the long-awaited recovery taking shape.

June quarter retail sales

Year to June

Retail spending stronger than expected in the June quarter

The June retail spending report was better than expected. While overall spending growth is still modest, spending appetites are gradually firming, including a lift in some discretionary categories.Retail spending rose 0.5% over the June quarter. That’s the third quarter in a row that spending levels have been pushing higher. The result was well ahead of our own forecast and the average market forecast for a fall in spending over the June quarter.At first glance, today’s result seems at odds with comments from the retail and hospitality sectors of continued soft trading conditions. But digging under the surface, we can start to see what’s going on.

In several sectors (especially durable items for the home), spending levels remain well down on the levels we saw in 2021. In addition, while spending levels are turning higher, spending growth remains quite modest – the volume of goods sold rose around 2.5% over the past year, compared to gains of around 4.5% per annum before the pandemic.But while the retail sector is still confronting some tough trading conditions, we are starting to see signs that the long-awaited recovery is taking shape. Spending levels have risen for the past three quarter. That includes gains in discretionary areas like recreational goods and electronics. However, it is still a mixed picture with spending in sectors like hospitality still flat.

What’s the outlook for the rest of 2025?

Today’s update is an encouraging sign for spending over the remainder of 2025. Spending levels are already pushing higher, and the full impact of the large reductions in interest rates over the past year is yet to be felt.Over the coming months, increasing numbers of borrowers will be rolling on to lower borrowing rates. The related lift in disposable incomes could be sizeable in some cases, and that’s set to boost spending through the latter part of the year.

There are still some headwinds for the retail sector. Most notably, unemployment is likely to rise around to 5.3% before the end of the year.

Even so, it looks like a recovery in the retail sector is now taking shape.

Implications for GDP growth

We’re forecasting flat GDP growth over the June quarter. Today’s result was ahead of our expectations. However, we’ll take a closer look at how our forecast for GDP growth is shaping up over the next couple of weeks as additional data on June quarter activity is released.

Source: ACTIONFOREX

Geopolitical Tensions Push Supply Risk Higher

Source: Reuters

Markets Rally on Rate Cut Hopes

Source: Reuters