The great and the good of the central banking world, academics and policymakers meet later this week at the US Federal Reserve’s annual Jackson Hole symposium in Wyoming. The big event of this three-day gathering is likely to be Fed Chair Jerome Powell speaking on the economic outlook and framework review on Friday morning at 10am Eastern time (14.00 GMT). Jackson Hole is an annual get-together which is often looked to for policy steer and updated assessments on the state of the US economy. BoE Governor Bailey and ECB President Lagarde are also scheduled to speak on a panel on Saturday.
There is much speculation and anticipation that Powell will give some explicit signals about a September Fed rate cut, especially as money markets are very convinced this will happen – there’s currently around an 83% chance of a 25bps rate reduction. Certainly, the confab has historically been used by Fed speakers to signal upcoming monetary policy changes, although that hasn’t always held true in recent years. The speech by the Chair is typically short without any Q & A, that is focused on the broader path ahead.
Recent data developments and Fedspeak
Recent US data suggest it’s too early for Chair Powell to unequivocally open the door for aggressive further policy normalisation. Since the downbeat jobs report at the start of this month, markets started to price in a September rate cut. But job growth is not that far below sharply lower payroll breakeven rates in light of tighter immigration policy.
The most recent CPI data was deemed not as hot as feared so further bolstered rate cut bets, but the PPI report was much hotter than expected and saw some dovish unwinding. The latter figures are the cost of imported goods and have a history of leading CPI. It seems that confidence in where the balance between upside risks to inflation and downside risks to job markets may reside remains unsettled and is awaiting more evidence.
Several Fed speakers have alluded to a 25bps cut next month. However, others appear more reluctant and certainly are not in tune with Treasury Secretary Bessent who has urged the Fed to begin a rate cut cycle with a 50bps reduction in September. Even so, markets will look for any signs that the Fed is giving more weight to labour market softness rather than to (tariff‐driven) inflation.
Market reaction
It may be too early for Powell to all but confirm a Fed move in September. There is one more NFP and one more CPI report before the mid-Sept FOMC meeting. Perhaps only when the facts of a ‘solid’ labour market change, will Powell have to acknowledge it and shift gears to more extensive policy easing. Many economists believe that the missteps post-Covid and the transitory call around super high inflation means the majority of Fed officials are conscious of cutting too early.
Last year saw Powell give explicit dovish guidance but that is unlikely to happen this time around. He is probably not going to pivot to current market expectations, and the White House demands for sharp and early rate cuts. That could dampen downside pressures on the dollar in the short term. Stocks could also retrace if Powell is especially non-commital. But markets won’t have to wait long to see who is right with the NFP and CPI data releases kicking off September ahead of the FOMC meeting on 17 September.