Federal Reserve Chair Jerome Powell is almost certain to offer what will be his last keynote speech at the Central Bank’s annual Conclave in one of the most intense periods in its history.
What is at stake is the short-term sentiment for financial markets, the long-term path of the Fed’s policy trajectory, and the smallest doses that seek to maintain traces of independence in an age where normal sacred facilities face enormous political pressures.
As Friday’s speech at Jackson Hole, Wyoming features gentle, collected veneer, even as he and his colleagues mask the weight they’ve been around for the year, like Powell’s first seven or more years in office.
“He did a good job of maintaining the Fed’s independence, ignoring some of the questions he gets, and continuing to focus on data dependencies and the Fed’s dual orders.” “He’s been on a high path as it relates to the Fed’s independence and some of the pressure he’s clearly gaining from the Trump administration.
Certainly, President Donald Trump has maintained an almost constant drumbeat against Powell and his colleagues. As he did for most of his first term, Trump put a badger on Powell to lower interest rate cuts. But these days, the president’s attack on the Fed has gone beyond mere monetary policy.
Earlier this summer, the White House assaulted the Fed for a major reconstruction project at Washington, DC headquarters. It coincided with the era when Trump made Powell a toy, but he later retreated that idea.
Then this week, the administration focused on federal government Gov. Lisa Cook, denounced mortgage fraud for two federally supported loans she took.
In the controversy, Powell can use his speech to at least swipe through political attention, even if he holds past practices of not achieving his direct purpose.
Politics and Policy
“He’s going to take the jab and talk about Fred’s independence, because what does he really need to lose at this point?” said Dan North, senior economist at Allianz Trade North America. “It seems pretty clear that Trump cannot legally fire him. He certainly can put all sorts of incredible pressure on him, and I think it’s an opportunity for Powell to say that the central bank must remain independent.
There is a policy beyond politics, and it will also challenge it.
The speech is billed as a “review of economic outlook and framework,” showing that it takes time for Powell to provide his opinion on a wide range of terms and discussing reviews that occur every five years to discuss the Fed’s long-term policy goals.
The market is hoping Powell will tee interest rate cuts in September. In each of his previous Jackson Hole speeches, which began in 2018, he showed significant policy changes. From driving quarterly cuts in its first speech to a critical switch in how 2020 inflation looks like a nod to last year’s aggressive September move, the market took clues from Chair keynote.
Wall Street’s commentary reflects similar expectations from this time, if it is a slightly subtle term.
“We don’t expect Powell to signal a critical cut in September, but the speech should make it clear to the market that he is likely to support it,” Goldman Sachs economist David Merrick said in a memo.
Kansas City Fed President Jeffrey Schmidt said the district will hold a Jackson Hole event and on Wednesday it hasn’t been sold yet to CNBC in the September cut and needs to see more data. In fact, only Gov. Christopher Waller and Michelle Bowman have made it clear that they will support the move next month.
“Most FOMC participants who expressed mixed feelings about the cut in September would likely be willing to support the cut if Powell pushed one, but they’d think it would be more reasonable to have more data and get closer to the meeting,” Merrill said.
Inflation and unemployment
An important point to look at is how Powell characterizes the labor market and his view on inflation pass-through from Trump’s tariffs.
Shortly after the Fed meeting in July, the Bureau of Labor Statistics announced slight employment growth in July and even weaker profits in May and June. However, several policymakers have used the term “solid” to describe the labor market, indicating less urgency to cut interest rates.
In the minutes since the July meeting, it was shown that most FOMC members were seeing greater concerns about inflation. Rafael Bostic of Atlanta in Kansas City and Cleveland local president Beth Hammack, who is Rafael Bostic in Atlanta, and Schmidt, expressed skepticism about the need for a September cut.
Powell “is likely not to commit in advance to a September cut that could disappoint some investors,” writes Krishnagha, head of Evercore ISI’s global policy and central banking strategy. “Many of his speeches may seek to provide long-term framing from a stable medium for policy strategies and inflation control.”
That framing is also important, and has attracted little attention on Wall Street so far.
Five years ago, contrary to the backdrop of protests against the Covid pandemic and police brutality, the Fed adopted what is called “flexible average inflation targeting.” Essentially, changes to the framework allow the Fed to heat up inflation, especially when unemployment rates are high, especially for underrated groups.
For the next few years, the Fed was on putts, but inflation reached its highest level in over 40 years. While most officials say changes targeting inflation do not play a role in the widely held view that inflation is “temporary,” the policy is likely to acquire modifications, and the Fed will return to its previous inflationary stance, including preemptive action when inflation appears to be rising.
“The adoption of the new framework in 2020 was not a major factor behind the Fed’s delays and substantial inflation overshoots, but it contributed to this outcome,” Deutsche Bank’s Chief Chief Economist Matthew Less. “For this reason, we hope that Powell’s speech at Jackson Hole will highlight changes in the Fed’s statement on long-term goals that reflect this reality. Specifically, the speech calls for rewinding the 2020 amendment and restoring its leading role.”
Luzetti added that Friday’s speech “will definitely not come at a more important time,” and he hopes Powell will change his tone in the labour market.
Powell’s speech will be presented at 10am ET. The meeting will end on Saturday.
