US Fed flashes red light to investors 

Jerome Powell has all but admitted what markets have been whispering for weeks: the threat to jobs is now overtaking inflation as the Federal Reserve’s dominant concern. 

Speaking in Jackson Hole, Wyoming, the Fed chair acknowledged that the labour market is losing momentum even as prices remain sticky. 

This pivot is no small thing. It signals that policymakers are preparing to cut rates, even though inflation is not yet defeated.

Indeed, for investors it’s a flashing red light. The story of the past two years was about bringing inflation under control. The story now is about keeping the economy from stalling. 

Both at once point toward stagflation — sluggish growth, persistent price pressures — the most difficult backdrop for central bankers and the most treacherous for those who sit on cash.

The latest data underlines the bind. Core personal consumption expenditures, the Fed’s favoured inflation gauge, is expected to show a 2.9 per cent year-on-year increase in July, the fastest pace in five months. On a monthly basis, the measure likely rose 0.3 per cent for the second consecutive month.

Cracks appearing

This is not consistent with inflation being tamed. Yet at the same time, job growth has slowed, the quits rate has fallen to pre-pandemic levels, and job openings are at their lowest since 2021. The Fed can see the cracks appearing.

By explicitly warning that the job market could falter, Mr Powell has shifted the narrative. Just a year ago, the mantra was “higher for longer”. 

Now, the emphasis is on risk management, which is central bank language for easing sooner rather than later. 

The market likes it — bond yields slipped, equities found fresh support and traders are already betting on a cut within months. 

However, the implications run much deeper than the short-term bounce.

Rate cuts when inflation is running hot are the classic recipe for stagflation. The last time the US faced anything similar was in the 1970s, when growth sagged under the weight of oil shocks and inflation gnawed away at household wealth. 

Few investors remember it firsthand, but the lessons endure: traditional portfolios struggle, fixed income loses its defensive qualities and sitting on cash is a guaranteed way to see purchasing power eroded.

This is why Mr Powell’s pivot matters so much. If he and his colleagues are moving toward prioritising employment, they are signalling a tolerance for higher inflation. For households, that means the cost of living will keep pressing upward. 

‘Cash is trash’

For investors, it means the value of cash will keep shrinking. The phrase “cash is trash” is more than a slogan. It is the unavoidable reality when central banks ease into inflationary conditions.

Some businesses can prosper in stagflation. Companies with strong pricing power, global exposure, and hard-asset bases have the ability to protect margins even as input costs rise. Energy producers, commodity exporters and firms with fortress balance sheets tend to come through periods like this stronger. 

Yet the wider market becomes more volatile, and the gap between winners and losers widens. 

For investors, the strategy must be clear. You either own assets that can ride an inflationary tide, or you risk being left behind. 

Equities with pricing power, real estate in supply-constrained markets, infrastructure, and gold all have historical records of preserving value when currencies are debased. 

Bitcoin, too, has emerged as a modern hedge. Whatever one’s view on its volatility, its fixed supply makes it an asset class increasingly seen as a counterweight to policy-driven debasement of fiat money.

The policy backdrop makes this moment more urgent. Mr Powell mentioned tariffs and their effect on prices. 

He admitted the impact is “clearly visible”. This isn’t theoretical — trade restrictions are already feeding through to consumers. 

Meanwhile, federal deficits continue to swell, injecting further demand into an economy already wrestling with inflation. The Fed knows it can’t crush inflation without crushing jobs. Mr Powell has chosen to protect employment, and that means living with higher prices for longer.

Don’t despair, act

This is not cause for despair. Markets can, and typically do, generate opportunities in stagflationary environments. 

But it requires investors to be decisive. Sitting on the sidelines is not neutral — it’s negative. Every month of 0.3 per cent core inflation erodes capital. Every rate cut under elevated inflation locks in that erosion.

The winners will be those who act before the consensus shifts. By the time headlines scream stagflation, the value will already have moved. Those with diversified portfolios anchored in real assets will not only protect wealth but may grow it as others scramble.

Mr Powell’s speech in Jackson Hole should therefore be seen not as a technical note for economists, but as a call to action for investors. The Fed is telling you what comes next. Rates are going lower, inflation is not yet beaten, and growth is at risk. This is stagflation by another name.

Investors must prepare accordingly. Own assets with intrinsic value. Prioritise exposure to sectors and instruments that can withstand inflationary erosion. Recognise that the cash sitting in accounts, however comforting it feels, is being steadily devalued.

The choice is stark. Own assets, or risk being left behind.

Nigel Green, deVere Group CEO and founder