Shenwan Hongyuan Group Co., Ltd. published a research report stating that on August 22, Powell delivered a speech titled "Economic Outlook and Framework Review" at the Jackson Hole Global Central Bank Annual Conference. Compared to the July FOMC meeting, Powell's policy tone shifted to "neutral-dovish." Powell's speech led to a significant heating up of "rate cut trading," with federal funds rate futures-implied September rate cut expectations rising from 72% to 94% at one point. The second half of 2025 represents a "tariff verification period," with the baseline scenario being: unemployment rate rising to the 4.4-4.5% range, with 2 rate cuts within the year. The key to whether September rate cut expectations materialize lies not in Powell's statements, but in the September 5 non-farm report and September 11 inflation data; the sufficient condition for the second rate cut expectation to materialize may be unemployment rising above 4.4%.

(I) Macroeconomic and Monetary Policy Stance: Stagflation Risks Coexist, Discretionary Decision-Making Based on Risk Balance Compared to the July FOMC meeting, Powell's policy tone shifted to "neutral-dovish." Regarding employment, Powell's description can be summarized as: "fragile balance" under weak supply and demand, with downside employment risks trending upward; (2) Regarding inflation, Powell believes tariff-induced inflation is clearly visible but may be "one-time," suggesting the need to closely monitor tariff transmission and diffusion in the short term. Regarding monetary policy stance, Powell believes the Federal Reserve needs to achieve balance amid "stagflation risks" (coexisting upward inflation risks and downward employment risks), acting cautiously and adapting to circumstances. Since policy rates are in restrictive territory, as baseline prospects and risk balance change, the Federal Reserve needs to adjust its policy stance, obviously in a more accommodative direction.

(II) Long-term Monetary Policy Framework Returns to Normalization: Long-term 2% Inflation Target + Broad Maximum Employment Goal In the second part of his speech, Powell introduced revisions to the Federal Reserve's long-term monetary policy framework (or strategy). At the August 2020 Jackson Hole Annual Conference, under "effective lower bound" constraints, Powell led the revision and release of a new framework, proposing "average inflation targeting," with greater focus on employment "shortfalls" and inflation "compensation." The 2025 "statement" is an "ex-post confirmation" of the Federal Reserve's monetary policy strategy over the past period. The macroeconomic backdrop for the 2020 "statement" revision was: based on the level-based "Phillips Curve," the dual mandate is complementary, allowing the Fed to balance both inflation and employment objectives. However, currently and in the future, the United States faces a "stagflation" dilemma, forcing the Federal Reserve to balance between dual objectives.

(III) Federal Reserve Rate Cut "Expectation Gaps" and Adjustment Risks: September Rate Cut, Then What? Powell's speech led to significant heating up of "rate cut trading." Federal funds rate futures-implied September rate cut expectations rose from 72% to 94% at one point. The number of rate cuts within the year increased from 1.9 to 2.2 times, while rate cuts before the end of 2026 increased from 5.0 to 5.3 times. The second half of 2025 represents a "tariff verification period," with our baseline scenario being: unemployment rate rising to the 4.4-4.5% range, with 2 rate cuts within the year. The key to whether September rate cut expectations materialize lies not in Powell's statements, but in the September 5 non-farm report and September 11 inflation data; the sufficient condition for the second rate cut expectation to materialize may be unemployment rising above 4.4%. The Federal Reserve's rate cut "expectation gap" mainly concerns 2026. The macroeconomic scenario for the first half of 2026 may be: inflation remaining sticky (staying elevated or declining at a slower pace than expected), economic stabilization and recovery, with unemployment declining. In this context, pricing in 3 rate cuts for 2026 may be overly optimistic, requiring attention to upward risks in medium- to long-term Treasury yields and "reversal" risks in the US dollar exchange rate.