Core Viewpoint - The article discusses the implications of a dovish monetary policy environment and its potential side effects, particularly the challenges in controlling inflation dynamics in the future. It suggests that after a series of interest rate cuts, the U.S. economy may face higher inflation levels, with a more pronounced stagnation this year and increased inflation next year [2]. Group 1: Powell's Dovish Shift - Powell's remarks at the Jackson Hole meeting marked a significant shift towards a dovish stance, indicating rising concerns about employment risks and a potential increase in layoffs and unemployment rates [4][6]. - The change in Powell's focus from solely the unemployment rate to the weaker aspects of labor data, such as slowing labor growth and declining labor participation rates, reflects a growing concern about the labor market [7][9]. - Powell's acknowledgment of the balance of risks shifting suggests that the current economic conditions warrant adjustments in monetary policy, moving away from a wait-and-see approach [13]. Group 2: Modification of Monetary Policy Framework - The modification of the monetary policy framework returns to a more flexible inflation targeting approach, emphasizing a balanced approach between inflation and employment, which may lead to increased dovish tendencies [14][17]. - The new framework indicates a tolerance for employment levels that may exceed real-time assessments of maximum employment without necessarily posing risks to price stability, suggesting a more accommodative stance towards economic overheating [18]. Group 3: Future Rate Cuts and Asset Implications - The threshold for not cutting rates in September has increased, with potential for a 50 basis point compensatory cut if non-farm data does not improve significantly [19]. - The dovish signals from the Fed may not lead to a continuous downtrend in the dollar, as the actual actions and future policy expectations could enhance U.S. economic prospects [22]. - The article suggests that the dovish monetary policy environment may support economic growth, particularly in consumer spending, while also leading to higher inflation expectations among bond investors [25][26].