Anticipation is high for Federal Reserve Chair Jerome Powell’s Jackson Hole speech on Friday.
Markets expect rate cuts to begin in September, with more likely through 2025.
But don’t expect any bombshells.
With the Fed’s course seemingly charted, Powell’s task is to walk a fine line—review the past, offer a glimpse of the future, and maintain the central bank’s trademark caution.
As Lou Crandall, a former Fed official and now chief economist at Wrightson-ICAP, notes, Powell will likely affirm the direction without nailing down specifics, leaving the timing and magnitude of cuts to upcoming economic data.
Powell’s speech, set for 10 a.m. ET headlines the Fed’s annual gathering of global central bankers in Jackson Hole, Wyoming.
The event, running through Saturday, centers on “Reassessing the Effectiveness and Transmission of Monetary Policy.”
If there was any lingering doubt about the Fed’s September intentions, it dissipated with Wednesday’s release of the July meeting minutes.
A “vast majority” of members leaned towards a rate cut, barring unforeseen surprises.
Philadelphia Fed President Patrick Harker reinforced this on Thursday, stating, “In September, we need to start a process of moving rates down.”
The burning question? Whether the first cut will be a quarter-point or half-point.
Markets favor the former, yet leave room for the latter, hinging on economic data over the next few weeks, particularly the forthcoming nonfarm payrolls report.
Crandall, aligning with market sentiment, sees the Fed’s base case as a quarter-point cut, though he doubts Powell will commit to it just yet.
Historically, Jackson Hole has been Powell’s stage for broad policy insights. In 2018, he defined “neutral” rates; in 2019, he signaled rate cuts.
In 2020, amid social unrest, he unveiled a new inflation-targeting strategy, paving the way for higher inflation tolerance—a move that would later test the Fed’s resolve.
This time, Powell’s challenge is to confirm market expectations while shedding light on economic trends—moderating inflation pressures, a softening labor market, and other signals.
“The key will be Chair Powell’s tone, which we expect to lean dovish,” says Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions.
He points to inflation nearing the 2% target and a cooling labor market as reasons for a less aggressive stance.
For over a year, the Fed has kept its key rate steady after a flurry of hikes.
Markets have weathered this high-rate environment, but recent data—deteriorating labor conditions, and a weakening manufacturing sector—suggest headwinds ahead.
Powell is likely to acknowledge these challenges while emphasizing the progress made against inflation.
“We expect Powell to express more confidence in the inflation outlook and emphasize downside risks in the labor market, given recent data,” notes Goldman Sachs economist David Mericle.
Goldman’s forecast aligns with market expectations: rate cuts at the next three meetings, followed by more easing in 2024, shaving about two percentage points off the Fed’s rate—a path Powell is expected to outline in broad strokes.
Though Fed chairs claim independence from market movements, Powell undoubtedly noticed the market’s reaction post-July meeting.
This time, he’s expected to reassure investors that the Fed is prepared to act. “Powell is inclined to support the stock market,” says Komal Sr-Kumar, head of Sri-Kumar Global Strategies.
“Time and again, he has signaled rate cuts. They haven’t materialized yet, but this time, he’s likely to deliver.”
Business leaders and investors alike will be closely watching Powell’s speech, as it sets the stage for potential changes in the economic landscape.
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