Traders are circling like its fight night in Wyoming

Showdown in the tetons

Jackson Hole is usually a monastery for monetary monks, a mountain lodge where academics drone about r-star models and equilibrium paths while markets doze in the back row. Not this year. This year the Tetons feel like a circus ring, Powell the high-wire act, Trump the heckler tossing firecrackers, and traders perched on edge, every eye glued to Friday’s speech.

Markets had been begging for a clean glide path to cuts. July’s payroll stumble, coupled with those brutal downward revisions to May and June, had futures traders sprinting headlong into the fantasy of a jumbo September slash. But just as the doves were stretching their wings, the PPI came in hot — the fiercest surge in three years — and torched the narrative. Inflation ghosts aren’t just alive, they’re rattling the rafters. Hawkish Fed voices piled on overnight, adding weight to the tape and forcing another step back from aggressive rate-cut wagers.

What was once near-certainty is now merely probability. September odds have been trimmed from 92% to the low-70s. Still elevated, but no longer a one-way bet. That leaves Powell boxed in, staring down a market that has already pre-doved the path and now demands he out-dove the curve just to keep risk assets from wobbling. Judging by today’s price action, traders are gaming for disappointment. The setup is primed for collision: if Powell even hints at less dovishness — let alone a hawkish lean — the tantrum won’t be slow, it’ll rip straight across the tape.

Complicating it all is the political drumbeat. Trump isn’t sitting quietly while the Fed debates; he’s shouting through the megaphone. Powell is “Too Late Jay,” the Fed is guilty of wasting taxpayer money on marble renovations, and Treasury Secretary Bessent is dispatched to openly demand a 50-basis-point cut. Independence is on trial in real time, and Powell’s term expires in May. The White House has already begun the search for a replacement. Traders no longer treat Fed credibility as an academic point — it’s a live market variable.

But there is no love lost here, Powell could easily opt to hide behind academic inflation nuances and leave traders dangling until payrolls and CPI drop in early September.

The dollar, written off earlier this year as yesterday’s trade, has suddenly rediscovered its mojo. The DXY is heading for its best week in a month. The euro has dropped below 1.16 and is looking heavy. Despite the market being convinced the BoJ will finally stir in October, the yen is very much unloved. I guess that's what being behind the 3% inflation curve will do to the currency. U.S. yields are higher, Fed cut expectations are falling by the wayside, and the greenback is once again showing signs of being the alpha predator on the FX board. TIC data showing foreign buyers still showing up for Treasuries has cut against the “Sell America” story. At the same time, even the RBNZ — normally a steady outpost — capitulated uber dovish this week as growth cracks deepened. Small canaries, maybe, but enough to remind traders of the real FX rules of engagement, interest rate differentials.

Europe is meanwhile back on the stretcher. German GDP contracted 0.3% in the second quarter, worse than the first estimate, leaving Europe’s largest economy still smaller than its 2019 self. Tariffs are chewing into exports, a stronger euro is weighing on competitiveness, and the Mittelstand is struggling to adapt. PMI optimism looks delusional against the hard data backdrop. With 10% of exports dependent on the U.S. consumer, the tariff regime has become a choke collar. The eurozone’s structural drag is a dollar tailwind, and the market knows it.

That leaves us at the foot of the Tetons staring up at Powell’s podium. Inflation ghosts on one side, labor cracks on the other, politics breathing down his neck, and a market demanding clarity. Friday’s speech is not just another Jackson Hole ritual. It is the only trade in town. The dollar is flexing, equities are limping, and global traders are circling like it’s fight night in Wyoming.