Recently, UBS conducted an in-depth analysis of Fed Chairman Powell's speech at Jackson Hole. UBS believes that although Powell's remarks suggest an increased likelihood of a rate cut in September to alleviate the negative impacts of trade tariffs, they fail to provide clear medium-term policy guidance for an economy undergoing structural transformation.

Despite the market's positive reaction to the rate cut signals, UBS pointed out that Powell's core message is essentially a neatly packaged data-dependent rhetoric. More concerning is that Powell did not make a strong defense of the Fed's independence, which could sow the seeds for potential political interference in the future.

UBS further analyzed the three major economic risks that may arise if the Fed becomes politicized: first, the uncertainty of inflation may heat up again; second, the actual borrowing costs may increase by an additional percentage point; finally, this change may trigger a chain reaction on fiscal policy, corporate investment decisions, housing affordability, household saving behavior, and speculative activities.

This analysis highlights the complexity of Fed policy-making and the far-reaching impact that political factors may have on economic decisions. Financial market participants and policymakers need to closely monitor these potential risks to ensure long-term economic stability and sustainable development.