We think the results are clear enough that the phrase “it’s time” will likely become one of Powell’s most memorable lines during his successful tenure as Fed Chairman.

Expectations are high for this year's Jackson Hole meeting, a platform the Fed has historically used to announce major policy shifts or strongly reaffirm policy preferences. 24 months ago, in August 2022, the market fell sharply due to Powell's extremely hawkish remarks. The stock market plunged 3.4% that day and fell 12% in the following month. This meeting took place just as the market had just escaped the "historic" one-day crash in early August and recovered most of its losses, thanks to the market's early expectations of a dovish Fed, pricing in about 4 rate cuts by the end of the year, compared to less than 2 rate cuts a month ago. The market is very curious whether the chairman will meet our expectations this time, or will he throw a bucket of cold water on us?

We think the results are clear enough that the phrase “it’s time” will likely become one of Powell’s most memorable lines during his successful tenure as Fed Chairman.

Here’s a heartfelt interpretation of some of the statements from Powell’s keynote:

The balance of risk for both of our missions has changed.

— It’s time to focus more on the job market rather than inflation, i.e., it’s time to shift to easing policy.

The cooling of the job market is undeniable.

— The economy needs help from rate cuts.

The time is ripe for policy adjustment.

— We will cut interest rates in September.

"The direction is clear, and the timing and pace of rate cuts will depend on incoming data, the changing outlook and the balance of risks."

— Interest rates will certainly go down. I can’t guarantee a 50 basis point cut in September, but if the economy needs it, it will. The “tail risk” now is that the Fed cuts rates more sharply at each meeting, at your own risk.

Our current policy rate level gives us ample room to address any risks we may face, including a further deterioration in labor market conditions.

— The U.S. base interest rate is very high, and we can cut it significantly if necessary.

“We do not seek or welcome a further cooling of labor market conditions,” Powell said, adding that a slowdown in the job market was “undoubtedly on the horizon.”

— We didn’t want the market to weaken before the end of the year (US election), and it is already weakening now.

“All in all, the recovery from the pandemic, our efforts to curb aggregate demand, and measures to anchor expectations have combined to make it increasingly likely that inflation will reach our 2% objective.”

— Inflation is over, the Fed has done its job, and I did a great job.

Let me conclude by emphasizing that the pandemic economy is unlike any previous economic situation, and there is still much to learn from this unique period... The limitations of our knowledge have been so apparent during the pandemic that we need to remain humble and questioning, focusing on learning lessons from the past and applying them flexibly to our current challenges.

— We have been very successful in recovering the U.S. economy from the pandemic and dealing with an unprecedented surge in inflation without any surprises, and history should study our outstanding performance during this period. Inflation is behind us, and now let us focus on lowering interest rates.

Basically, this Jackson Hole speech was a "celebration parade" to celebrate the Fed's ability to control inflation, raise interest rates from 0% to 5%, and recover from the epidemic without any surprises. Even long-time critics of the Fed must give them their due, the U.S. economy is indeed significantly outperforming nearly all other developed and major emerging market economies, and the SPX Index continues to reach record highs. Now that the Fed believes that the inflation chapter is "over," it is time to support the U.S. economy if necessary, and they still have plenty of ammunition.

Needless to say, the market reaction was very clear. Stocks rose, yields fell, the dollar weakened, the yen rose, volatility fell, and credit markets strengthened. The 2-year and 5-year Treasury yields closed near their monthly lows at 3.9% and 3.6%, respectively. The Nasdaq index returned to its 50-day moving average and above important technical indicators. The USD/JPY fell back below 145, the market turned to yen longs and completely flipped the "carry trade". BTC also rebounded to above $64,000, and gold stabilized above $2,500.

With this expectation already set, the market will now refocus on weekly unemployment claims data as well as monthly non-farm payrolls, with inflation taking a back seat unless it rises sharply for several months in a row. As a result, trading activity this week is likely to be relatively quiet, with Nvidia's earnings release after the close on Wednesday likely to be the biggest event, while the market is likely to downplay the importance of Friday's PCE data, while the U-M consumer confidence index is likely to still receive some attention to assess consumer spending.

Markets may take a break in the last week of summer before heading into a busy fall season, with the first U.S. nonfarm payrolls report after Labor Day having a significant impact on risk sentiment in the fourth quarter.

On the crypto side, despite a rebound in prices following Powell’s speech in Jackson Hole, near-term fundamental challenges remain, with cryptocurrencies having underperformed significantly since July compared to other major asset classes.

ETF inflows have been low since launch, especially ETH, suffering from poor timing (risk sell-off in August) and weak ETH on-chain activity, with L1 fees having fallen to multi-year lows as revenue is concentrated on L2s Lows.

In addition, overall speculative enthusiasm has also declined, and perpetual contract funding rates have entered flat/negative territory, especially after the market sell-off in early August, when many long traders were forced out due to profit and loss control.

This has resulted in BTC’s dominance continuing to rise in a one-way direction, with crypto increasingly viewed as an alternative asset class (like oil), while the average mainstream investor prefers to only participate in the benchmark token (BTC) due to its simple and clear value proposition of “store of value” for non-technical investors.

Unsurprisingly, focusing solely on BTC as an alternative asset class rather than focusing on the cryptocurrency “industry” means that cryptocurrency prices are increasingly correlated with overall macro risk sentiment, with BTC and ETH’s rolling correlations with the S&P Reached 1-year high.

On the positive side, Axios reports that cryptocurrency has become the dominant force in corporate donations to this year's election, contributing about $120 million so far, nearly half of total corporate donations. Although the donations mainly come from a few major donors, the industry as a whole still hopes to gain more favorable political support in this election.

Regardless, both parties have made their views on cryptocurrencies clear, and we expect prices to be increasingly influenced by shifting election odds and expectations of rate cuts. Doesn’t this sound just like other traditional macro assets?

I wish you all good trading in the remaining summer!