The Fed's Jackson Hole Theater: When Markets Beg for Breadcrumbs

An Internal Monologue from Your Friendly Neighborhood Bond Vigilante

August 21, 2025

Here I sit, coffee growing cold, watching futures flicker green-red-green like a broken Christmas light, and I can't shake this feeling that we're all extras in the Fed's annual Jackson Hole production. The curtain rises tomorrow in Wyoming, where central bankers will gather to discuss "Labor Markets in Transition" — as if they just discovered that demographics exist and productivity matters.

But here's what's really eating at me this morning: Fed officials worried at their July meeting about the state of the labor market and inflation, though most agreed it was too soon to cut rates, minutes showed. Too soon? The markets are pricing in an 87% chance of a 0.25% cut at September's meeting, and these guys are still wringing their hands about timing.

Meanwhile, the Nasdaq 100 slid 1.4% — its second-worst drop since April's tariff shock — led by a 3.5% rout in Nvidia yesterday. NVDA carrying the weight of the entire AI narrative on its silicon shoulders, and when it stumbles, suddenly everyone remembers that maybe, just maybe, we've been building castles in the cloud.

The irony is delicious. Meta's notional short interest has soared 75%, or $11 billion, so far in 2025 — because apparently betting against Zuckerberg's metaverse fever dream is the new black. Yet somehow the same crowd cheering these shorts is still buying the AI infrastructure story with both hands.

And let's talk about the real elephant stomping around Wyoming this week. Jackson Hole used to matter. It used to be where Fed chairs dropped bombshells that moved currencies and crushed carry trades. Now it feels like theater for an audience that's already read the script. Powell's going to say something about data dependence. Someone will mention "soft landing." The dollar will gyrate 50 basis points in either direction on parsing verb tenses.

But here's what they won't say: Economic growth in the first half of 2025 benefitted from the "frontloading" of purchases by U.S. businesses and consumers to get ahead of higher proposed tariffs. This activity seems to have ended, which may create some near-term slowing in global growth for the second half of the year.

So we pulled demand forward, artificially juiced the first half, and now we're staring at the hangover. Classic. The sugar rush is wearing off, and suddenly everyone's wondering why they feel so tired.

The bond market knows. Ten-year yields have been doing this jittery dance between 4.2% and 4.6% for weeks, like they're waiting for permission to break out of their range. A pick-up in inflation lifted bond yields alongside the dollar just last week, because apparently we're not quite ready to declare victory on the price stability front either.

You know what's really grinding my gears? Valuations increased faster than the market return but are concentrated in only five stocks. Five stocks. We've got this magnificent, diverse, innovative economy, and the S&P 500 is basically a leveraged bet on whether five companies can keep justifying their weightlifting routine.

Meanwhile, natural disasters triggered $80 billion in insured losses in the first half of 2025, nearly double the 10-year average, and losses might hit $150 billion for the year. But sure, let's focus on whether Powell uses the word "considerable" or "substantial" when describing progress on inflation.

The markets are begging for breadcrumbs from Jackson Hole. A hint about September. A nod toward the neutral rate. Some acknowledgment that maybe, possibly, they've kept rates restrictive long enough. But what if the real story isn't what they say — it's what they can't say?

They can't say that the tariff-driven growth boost was always going to fade. They can't say that AI productivity gains might take longer to materialize than equity markets assume. They can't say that keeping five stocks propping up the entire index is probably not the most sustainable foundation for a bull market.

Instead, we'll get scholarly papers about labor force participation rates and carefully worded speeches about the dual mandate. The tourists will take their pictures. The reporters will parse every syllable. And somewhere in Wyoming, a group of very smart people will once again discover that running the world's reserve currency is harder than it looks.

But hey, at least the scenery's nice.

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What do you think? Are the markets setting themselves up for disappointment in Wyoming, or is there actually something meaningful brewing behind all the academic theater? Hit reply — I read every response.