U.S. President Donald Trump has stepped back during crucial moments, leading to the so-called 'TACO (Trump Always Chickens Out),' while Jerome Powell, chair of the U.S. Federal Reserve (Fed), reportedly has realized the 'PACO (Powell Always Chickens Out)' as of the 25th.
Park Sang-hyun, a researcher at iM Securities, explained that at the recent Jackson Hole meeting, Chair Powell significantly adjusted his previous stance on inflation and employment. Powell noted, 'The downside risks to the labor market are increasing,' which contrasts with his previous position that the labor market remains solid.
Chair Powell also mentioned, 'The impact of tariffs on consumer prices is becoming clearly evident,' while adding that 'there is increasing confidence in the basic scenario that this impact will be relatively short-term.' This implies that inflationary pressures due to tariffs may be short-lived.
Researcher Park stated, 'Chair Powell's remarks can be interpreted as a declaration to shift the focus of monetary policy from inflation to employment, moving away from the existing hawkish stance (preference for tightening).'
A trend similar to Powell's actions last year can be expected. As employment market slowdown signals emerged under the so-called 'Sahm's rule,' Powell indicated a rate cut at the Jackson Hole meeting last August, followed by the Federal Open Market Committee (FOMC) implementing a 'big cut' (a 0.5 percentage point decrease in the benchmark interest rate) in September.
Researcher Park identified two reasons for Powell's shift in stance. Firstly, his term is set to end in June 2026. Park explained that Powell likely wants to avoid a recession in the U.S. before his term expires.
Political pressure from President Trump continues. Already, two Federal Reserve Commissioners support Trump's call for rate cuts, and the White House economic advisor has been nominated as a new Fed Commissioner, significantly weakening Powell's position.
Researcher Park noted that the so-called PACO could lead to additional rallying in the U.S. and global stock markets. It is expected to provide relief in the bond market as well.
However, Researcher Park stated, 'There is potential for increased volatility in financial markets depending on the July Personal Consumption Expenditures (PCE), the August employment report, and the results of the August Consumer Price Index (CPI), which could affect the Fed's rate cuts or the scale of rate cuts.'