Markets Tread Water As Powell to Walk Tightrope At Jackson Hole. Forecast as of 22.08.2025
The Fed chair is unlikely to give a clear signal about the central bank’s actions. There are significant divisions among Federal Reserve officials. Jerome Powell cannot predict the outcome of the September meeting. Let’s discuss this topic and develop a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The odds for a Fed rate cut in September are falling.
- There is a serious rift within the FOMC.
- Powell is unlikely to give any clear signals.
- Short trades formed at 1.165 on the EURUSD pair should be kept open.
Weekly US Dollar Fundamental Forecast
The US PMI Composite is growing at its fastest pace in 2025, with the manufacturing PMI and the purchasing managers’ price sub-index rising at their fastest rate in three years. In such conditions, it is not a rate cut that should be considered, but rather a rate hike. Meanwhile, the probability of the Fed resuming its monetary expansion cycle in September fell to 75%, and the greenback continued to advance.
US PMI Composite
Source: Wall Street Journal.
Investors are eagerly awaiting the Jackson Hole symposium. Jerome Powell’s speech in Wyoming is often considered a landmark event. In 2024, he signaled the start of a cycle of monetary policy easing. In 2020, he announced the Fed’s new approach to inflation targeting. The regulator may tolerate prices above 2% in order to maintain flexibility. The cooling labor market presents an opportunity to reduce rates, despite PCE being just below 3%.
At the same time, Donald Trump is demanding, and the derivatives market is expecting, a sharp reduction in borrowing costs in September by 25 bps and by 100 bps over the next 12 months. Many investors have noted a correlation between the acceleration of the cycle and the change in the Fed chair. If the US administration appoints its Fed chairman, rates will surely collapse.
Market Expectations on Fed Rate Cut
Source: Bloomberg.
Jerome Powell’s speech in Jackson Hole will be his final comments as Chairman of the Federal Reserve. The head of the central bank will certainly not rule out the resumption of the monetary expansion cycle in September. He will make it clear that the data has weakened to the point that a rate cut is appropriate. The Fed’s final decision will be based on new employment and inflation statistics.
This flexible approach is essential. The Fed is not a one-person institution. The FOMC makes decisions collectively. The internal division within the Fed hinders Jerome Powell’s ability to deliver clear signals. For instance, Cleveland Fed President Beth Hammack voiced concerns regarding inflation. She has not shown readiness to vote for a reduction in the cost of borrowing. However, Boston Fed President Susan Collins has warned of the potential risks associated with the cooling labor market.
The issue will be resolved in September, and monetary expansion will resume. However, it is improbable that another reduction in the federal funds rate will be seen in the remainder of the year. According to Goldman Sachs, US companies are beginning to shift the burden of costs to consumers. Given the potential dissolution of tariffs, the rationale behind price increases remains questionable. However, if tariffs pose a serious and long-term threat, it is certainly another scenario to consider. Inflation is projected to accelerate, which may trigger a correction in the dollar.
Weekly EURUSD Trading Plan
The short trades formed at 1.165 on the EURUSD pair represent a prudent strategy to maintain. Meanwhile, Jerome Powell’s hawkish rhetoric at Jackson Hole will likely reverse the downward movement. In all other scenarios, the major currency pair is expected to slide to 1.155 and 1.15.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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