Interest Rates: What Next?
Interest Rates:
What Next?
To many, Jackson Hole may mean nothing at all; to others, it's a scenic holiday destination. However for a select group, it's renowned for one thing: the annual Jackson Hole Economic Symposium. This prestigious gathering brings together prominent central bankers, finance ministers, academics, and financial market participants from around the globe to discuss pressing economic issues, their implications, and potential policy responses.
This year's theme, "Reassessing the Effectiveness and Transmission of Monetary Policy," highlighted the complexities and challenges that central banks face in navigating post-pandemic economic realities. Federal Reserve Chair Jerome Powell delivered the most anticipated speech of the event, striking a tone of cautious optimism. Powell acknowledged that while inflation in the U.S. has significantly decreased from its peak, it remains above the Federal Reserve’s 2% target. He stressed that the Fed would continue to monitor economic data closely and remained open to further interest rate hikes if necessary to ensure that inflation trends downward sustainably.
Expected Federal Reserve target rate: According to market expectations, the anticipated Federal Reserve target rate is significantly lower than it was three months ago.
Source: Artorius, Bloomberg
Powell's speech also reflected on the resilience of the U.S. economy, which has weathered multiple interest rate increases without slipping into recession. However, he warned that the full effects of these rate hikes have yet to be felt, suggesting that the Fed could move cautiously in its future decisions, although implying a rate cut in September was likely. This approach underscores the delicate balance that the Fed must strike between curbing inflation and avoiding undue harm to economic growth and employment.
Beyond Powell's address, the symposium featured a range of discussions on the global economic landscape. Central bankers and economists from other major economies shared insights into their own challenges with inflation and growth, emphasising the diversity of experiences and policy responses. For instance, European Central Bank (ECB) President Christine Lagarde discussed the ECB's struggles with inflation, which, unlike in the U.S., has been more persistent, largely due to a greater impact from energy price shocks following the Russian invasion of Ukraine.
Participants also debated the broader implications of tightening monetary policy globally. Many speakers noted that while higher interest rates are necessary to combat inflation, the interconnectedness of global economies means that policy decisions in one region can have significant ripple effects elsewhere, making international coordination and communication more critical than ever. While Jackson Hole didn’t reveal anything that markets weren’t already anticipating, it highlighted the complex and interconnected challenges facing the global economy. Although there are signs of progress, particularly in the U.S. with declining inflation and a stabilising labour market, significant risks remain. The discussions at Jackson Hole underscore the need for a cautious and coordinated approach to economic policy - one that is responsive to evolving conditions and mindful of the broader global context as the world continues to navigate economic and geo-political uncertainty.
Nvidia Earnings
Away from central bankers and policymakers, another major market event on Wednesday evening was Nvidia's Q2 2025 earnings report. As mentioned in previous notes, Nvidia been a major driving force of equity markets over the last two years.
The report was a strong showing, driven primarily by the continued surge in demand for AI-powered technologies.
Delivering record-breaking revenue, Nvidia achieved a record-high revenue of $30 billion for the quarter, representing a substantial increase of 122% year-over-year. This demonstrated the company's continued leadership in the high-performance computing and AI space.
Nvidia earnings: Once again beat expectations, but analysts' growth expectations are still high (measured by Earnings per Share (EPS)) so the focus on their earnings will not go away anytime soon.
Source: Artorius, Bloomberg
Earnings period reflects Nvidia financial year end and quarters in that financial year.
While the report exceeded expectations, the share price experienced a decline of 8% following the release. This likely happened because expectations were high based on the company’s previous performance and overall hype surrounding AI technology. Whereas previous earnings releases have led to analysts upgrading future revenue and earnings expectations, this was not the case this time around. In fact, future expectations were clouded by a lack of reassurance on its next generation Blackwell chip roll out. Interestingly, at the time of writing, the effect on the wider markets appears to be muted.
While neither the annual Jackson Hole Economic Symposium nor Nvidia’s earnings significantly impacted stock markets, reiterating market expectations, it's crucial to remember that markets are driven by various factors, both obvious and less so. Even though events in the US may seem distant, they can influence UK markets and client portfolios. As a company, we adopt a global perspective on both macro and company events.
Josh Young de Ferrer
Portfolio Manager
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