Has Friday's market drop brought the devaluation trade to a close?
The Turning Point in Fed Policy
Following Chair Powell’s notably dovish address at Jackson Hole on August 22, the so-called debasement trade gained significant momentum. Prior to this pivotal speech, the Federal Reserve found itself caught between conflicting pressures: a softening job market and persistent inflation that remained above its target. In 2024, the Fed implemented a total of 100 basis points in rate reductions—including a contentious 50 basis point cut ahead of the election—which led to a pause in further action throughout 2025, much to Trump’s frustration.
Powell’s remarks marked a decisive shift in priorities, signaling that the central bank would now place greater emphasis on supporting employment, even at the risk of allowing inflation to remain elevated. This clear message indicated that additional rate cuts were on the horizon, despite ongoing inflation concerns.
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