Powell Jackson Hole Speech Poised To Set the Stage for September Rate Cut

Federal Reserve Chair Jerome Powell is expected to easily find his way to news headlines next week’s annual economic symposium in Jackson Hole, Wyoming. The event, hosted by the Kansas City Fed, brings together global central bankers and provides a platform for assessing economic trends and monetary policy.

Economic Assessment:

Powell’s speech will offer an updated assessment of the US economic trajectory. Positioned between the central bank’s July and September policymaking meetings, this address is crucial for understanding the Fed’s outlook. Last month, Powell hinted that if inflation and labour market conditions continue to cool, an interest rate cut could be on the table at the Fed’s next meeting.

Current Policy Landscape:

The Fed has maintained its policy rate in the 5.25% to 5.50% range for over a year, aiming to slow economic growth and manage inflation. Concerns arose when weak job-market data suggested the Fed had kept policy restrictive for too long. Investors speculated on an aggressive half-percentage-point rate cut in September to counter a potential recession.

Recent Data and Expectations:

Encouraging recent data, including a strong retail sales report, indicates that inflation is receding. However, the economy remains far from collapsing. Investors now anticipate the Fed to reduce borrowing costs by a more typical quarter of a percentage point next month.

September Rate Cut:
Economists expect Powell’s speech to set the stage for a September interest rate cut. The actual size of the move will depend on August jobs data, which will be released a week later. Powell aims to be “proactive” rather than “reactive” with rate cuts, emphasizing the importance of labour data in shaping policy decisions.

Jackson Hole Tradition:

While not yet confirmed, Powell is likely to continue the tradition of giving opening remarks at the Jackson Hole conference. His comments will be closely scrutinized for insights into the economy, especially following a weaker-than-expected jobs report and easing inflation.

Uncertainty Ahead:

The Fed’s next gathering (Sept. 17-18) is widely expected to result in reduced borrowing costs. However, there’s debate over the magnitude of the cut. Some economists predict a quarter-point reduction, while others, including Citigroup Inc. and JPMorgan Chase & Co., anticipate a larger, half-point adjustment.

Powell’s speech will be closely watched, but it’s unlikely to reveal explicit details about the September rate decision. Nonetheless, there are critical questions about the future of monetary policy that Fed officials should address

Federal Reserve Chair Jerome Powell will use his Jackson Hole speech next week to set the table for a September interest rate cut, while the actual size of the move will be determined by the August jobs data that comes a week later, according to most economists.

Powell will set the tone for coming monetary easing by leaning into the need to be “proactive” rather than “reactive” with rate cuts. The details won’t be set until the Fed sees the August employment data on September 6.

This is now a labour data-first Fed, not an inflation data-first Fed, and the incoming labour data will determine how aggressively the Fed pulls forward rate cuts.

Although not yet confirmed, Powell is generally expected to continue the tradition of the Fed chair giving opening remarks at the Fed’s Jackson Hole conference on Friday morning next week.