David Rosenberg, Rosenberg Research founder, joins 'Money Movers' to discuss Fed Chair Powell's Jackson Hole speech and what it means for interest rates and the markets.

Washington

David Rosenberg, founder of Rosenberg Research, analyzed recent comments from Federal Reserve Chair Jerome Powell and the latest FOMC minutes. He noted that the Fed staff has reduced its inflation projections and expects the unemployment rate to rise above the natural rate, suggesting significant slack will develop in the labor market and persist for several years.

Rosenberg believes these developments indicate the Fed is preparing for a sequence of interest rate cuts, rather than a single adjustment. He also highlighted that Powell acknowledged ongoing inflation risks but emphasized that tariff-related price increases are unlikely to translate into higher wages or sustained inflation, setting the stage for a more accommodative monetary policy.

Likely sequence of Fed rate cuts coming, says David Rosenberg

Let's dig deeper into how the markets are processing all these headlines from Chair Powell's speech, joining us with his takeaways is Rosenberg Research Founder and President David Rosenberg. Were you surprised to hear Powell much more open today to the policy pivot in the September cut? Well, if you would have asked me a few days ago, I would have been surprised. But then I gave a good second look at the FOMC minutes that have come out from the last meeting. And what was really important, I think, was the Fed staff economics forecast that the Fed staffers actually reduced their inflation projection. They had commented that the impact of tariffs are looking to be more muted than what they had thought previously. But the real kicker for me was their view that the unemployment rate is going to rise above the natural rate of unemployment. In other words, by the end of the year, we're going to start building some significant slack in the labor market. And they said that's going to persist not just through next year, but into 2027. And that was a really important message for me because, you know, when you read the minutes, right, you know, the FOMC participants, they just pontificate. But the only ones that actually give a projection are the Fed staffers. So as I put on my note this morning, I had said that my hope is that Powell is going to pay some lip service to what the Fed staffers had to say at the July meeting. And maybe that's what ultimately tilted him toward this policy stance. So so what do you think happens from here? How did how do the forecast for monetary policy change? Well, I you know, I think this was more than just mildly dovish. I wouldn't say it was super dovish. There were enough caveats. But, you know, when you read between the lines and you assess the tone, this was not just tipping his hat for a September 17th rate cut. I think this was actually a move towards suggesting that we're going to be in for a sequence of rate cuts ahead. I think that's what I came out of it, that this is not just going to be September and then we're going to pause. I think there's going to be a sequence of cuts coming after that. And do you think he did a good job in relaying that message without making it seem like he gave into political influence? Absolutely. Look, I think that I mean, he might be a lawyer, but he sounded a lot like an economist. And I think that what was really important was, you know, he didn't dismiss inflation risks outright. He did acknowledge that this is a drip drip. It's not necessarily a one off. But what he said, importantly, and this comes down to what the Fed staffers had to say about the labor market, is that we are likely going to build up enough slack that whatever near term inflation, statistical inflation that we get from the tariffs is not going to feed into wages. So you got to think about that. If the tariff effect on prices does not feed into wages, then the tariff effect hits the wall in the labor market. And there is no sustainable inflation coming out of this. This is not 2021, 2022, 2023, when the unemployment rate was going down, labor market was tightening and we had burgeoning demand. This is something totally different. So that's really one of the key takeaways was the line. But he had mentioned about the fact that his base case is that this will not trigger a response on the wage side. Ergo, what we're left with with the tariffs is negative real incomes, not future inflation. That's my take on it.

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