SOTS 2nd Hour: Fed Chair Speaks At Jackson Hole – His Remarks & Investor Analysis 8/22/25

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Sara Eisen (1:04)

Welcome to a special edition of Squawk on the Street. I'm Sara Eisen with Carl Quintanilla. David has the morning off. Moments away, the event Wall Street has been waiting for all week long. A highly anticipated speech from Fed Chair Jay Powell in Jackson Hole, Wyoming will take you live as soon as it kicks off. But first, former Pimco chief economist Paul McCulley is with us. Paul, it's great to have you on a day like today. I mean, tough spot for the Fed chair. He's dealing with a ton of political pressure and attacks from the president. Some serious accusations currently swirling at this moment around one of his Fed governors and a real policy dilemma with upside and downside risks all around his mandate, dictating different ideas on policy. What do you think he's going to do?

Paul McCulley (1:51)

I think all of that's true. This really is the world series of global monetary poker today. We're waiting for him to turn over the cards.

And I think that he's going to de facto confirm that recalibration 2 is going to start in September. So I think he may not say it explicitly, but they're going to start the easing process or restart the easing process in September. I think we'll get that out of the speech, but I think he's going to have a fair amount of ambiguity about the contours of what happens afterward. The market's pricing, essentially, recalibration, 2 will be about 100 paces points, the same thing as the last, and I think that's right, but I doubt he'll pound the table on that. But I do think we'll get a good signal.

Sara Eisen (2:44)

A nod to September?

Paul McCulley (2:45)

Or start in September.

Sara Eisen (2:47)

I mean, maybe he should do that. I don't know if he will. I have been surprised at some of the commentary and fedspeak coming out of Jackson Hole from voters and nonvoters sort of playing down the weakness in the labor market and more concerned with the inflationary pressure, whether it's from tariffs or services and not really sensing an urgency to cut rates.

Paul McCulley (3:09)

I've been picking up on the same thing. And I think that robust debate, which reflects honest division, really applies more to the path after the first cut. It's not just the first cut. It's a path, just like last year was 100 basis points. It's a path. So I think that the path is what the real intents to bait is about. And on the issue of when do we start, I think it gets muddled a little bit. But it seems to me that that last employment report settled the issue. That was just a whiter shade of pale.

And you can't deny that's what it was. And it opens up the downside risk on employment relative to the last meeting. So I think starting the next stage of renormalization makes sense. But the debate is about thereafter.

Carl Quintanilla (4:07)

Yes. Let's get to Steve Liesman and Jackson Hole. Steve?

Steve Liesman (4:12)

In his speech to Jackson Hole, Fed Chair Jay Powell will say that the shifting balance of risk quote may warrant adjusting our policy stance. Policy says is modestly restrictive territory. But the stability of the unemployment rate right now allows the Fed to proceed carefully. It's a lot of this but that in this speech. Inflation risks are to the upside, but employment risks are to the downside. With these goals in tension, the Fed will take a balanced approach to the dual mandate. Let's talk about on tariffs and inflation later on jobs. On tariffs, he says, higher tariffs have begun to push up prices in some categories. He sees a 2.9% core PCE for July. That's up a 10th from June. He notes that there's a notable increase in goods, downward inflation in housing and non-housing services. The key factor for him have been a bit high. The effects on tariff consumer prices are, now clearly visible. He expects them to accumulate over the coming months. However, a reasonable base case is the tariff effects will be relatively short lives.