Unemployment rate is now the U.S. Fed’s undisputed lodestar

Jerome Powell's Jackson Hole speech sets the stage for pivotal U.S. monetary policy decisions in September.

Jerome Powell's Jackson Hole speech has turned Sept. 6 and Sept. 18 into the two most important dates for U.S. monetary policy in years, as events on both days center on the Fed's new guiding light: the unemployment rate.

The first marks the release of the August non-farm payrolls report, and the second will see the Fed's much-anticipated interest rate decision and, just as crucially, its updated Summary of Economic Projections (SEP).

The Fed will almost certainly cut rates on Sept. 18, as Powell signaled at Jackson Hole and as other officials have effectively confirmed since. The only questions now are whether the easing cycle starts with a 25- or 50-basis-point cut, and how much policy is loosened in the coming months.

After these two pivotal days in September, investors should have their answers.

Powell essentially made two pivots in Jackson Hole. The first, as expected, is his clear signaling that a rate cut is forthcoming. The second, perhaps less anticipated, is his equally clear emphasis that unemployment, not inflation, is now the number one determinant of upcoming policy decisions.

Powell's warning that the Fed does "not seek or welcome further cooling in labor market conditions" basically means the current unemployment rate of 4.3% – which is still fairly low by historical standards – is now a "line in the sand" that, if crossed, will likely trigger a policy response.

"The unemployment rate is now around 90% of the Fed's dual mandate, inflation is about 10%," said John Silvia, founder of Dynamic Economic Strategy, adding that Powell's pivot to unemployment from inflation is remarkable considering the economy isn't in recession.