1 min readMarkets remain laser focussed on two key events today and in the coming week: the Core PCE, the Fed’s favoured measure of inflation, released today, and next week’s payrolls, following the more dovish rhetoric from Powell at the Jackson Hole Symposium.
Chair Powell’s Jackson Hole speech confirmed the dovish shift in thinking at the top of the FOMC, which seemed likely after July’s shock employment report. In contrast to the July Fed minutes, when most of the FOMC still saw the upside risks to inflation as more salient than the downside risks to employment, Chair Powell acknowledged that “the shifting balance of risks might warrant adjusting our policy stance”. He emphasised the drop in labour demand evident in the jobs numbers, while pointing to the risk that this could soon lead to a sharp rise in layoffs. Meanwhile, he expressed more confidence that the impact of tariffs on inflation will probably be significant but fleeting, describing a “short-lived one-time shift” in the price level as “a reasonable base case”. He also speculated that weak employment demand makes employees bid for higher wages in response to tariff-driven price rises as unlikely.
However, futures markets remain sceptical about a September rate cut, pricing around 21 basis points, which implies no cut. The just-published Core PCE indicates inflation is not running out of control, coming in at 0.3% month on month and inline with consensus. This sets the scene for a weaker economy and a low-inflation environment that would encourage the Fed to act and cut rates. The next hurdle is next Friday’s payroll figures. Our estimates, based on the falling labour differential highlighted in the Conference Board’s Consumer Confidence report earlier this week (jobs plentiful minus jobs hard to get), suggest the employment picture remains very weak and is likely to miss the 78k headline expectation.
NFIB hiring intentions also point to a weakening labour market. This suggests a downside surprise to the jobs data, likely bolstering the case for a September rate cut and, in turn, likely providing support for both Bitcoin and Ethereum prices following publication next week.
We have already seen a more hopeful investor this week, with the return of inflows, having seen US$2.7bn inflows overall and likely finishing August with US$4.6bn of inflows. Sentiment continues to swing massively in favour of Ethereum, which has seen US$4.2bn inflows compared to net outflows for bitcoin of US$218m. Select altcoins are following suit, such as Solana and XRP, although both are under 7% of the inflows that Ethereum has seen. We are also seeing little evidence of broad moves into other altcoins at present.
