Breaking Down the Fed’s New Course

This podcast episode, the first of a two-part series, features Matthew Hornbach interviewing Michael Gapen, Morgan Stanley's Chief U.S. Economist, about the market's reaction to Chair Powell's Jackson Hole comments. Gapen expresses surprise at the hawkish tone, highlighting three key aspects: increased Fed concern over downside labor market risks, a shift to risk management mode potentially involving rate cuts, and a cautious approach to these cuts. He forecasts a path of quarterly rate cuts through 2026, totaling six cuts, but cautions that alternative scenarios exist, depending on factors like August employment data, inflation tolerance, and the possibility of a recession. The interview concludes with a preview of the next episode, which will focus on interest rate markets and the U.S. dollar.