U.S. economic indicators are paving the way for the Federal Reserve to begin cutting interest rates, with financial markets aligned for the first move. The central bank has strongly hinted at this shift, as revealed in a recent readout of its July meeting, where a “vast majority” of policymakers agreed that policy easing would likely start next month. Against this backdrop, Fed Chair Jerome Powell’s upcoming keynote speech at the Kansas City Fed’s annual Jackson Hole research conference is expected to focus on assessing the current economic landscape rather than setting new expectations.
Richard Clarida, a former Fed vice chair and now global economic adviser for Pimco, noted that Powell’s primary objective may not be to introduce new policies but rather to reflect on where the economy stands as the Fed prepares for what he has termed a “consequential” first step in rate cuts. Powell will deliver his address at 10 a.m. EDT (1400 GMT) from Jackson Hole, a venue that has become a global platform for central bankers to influence monetary policy discussions.
Powell’s previous speeches at the conference, with one exception, have been largely explanatory, focusing on the Fed’s approach to significant structural issues and the mechanics of inflation. The exception occurred in 2022, when Powell delivered a stern message aimed at managing public expectations about inflation. This year, as inflation hovers around half a percentage point above the Fed’s 2% target, Powell may return to his typical explanatory style, potentially outlining how the central bank will approach the anticipated easing cycle.
Former Fed staff and analysts suggest that Powell might avoid providing detailed guidance on future rate cuts, given the risk of triggering market reactions or the possibility of evolving economic conditions. Instead, Powell could offer insights into the Fed’s strategy for responding to different economic scenarios, emphasizing the uncertainty and potential flexibility in future policy decisions.
The Fed’s recent success in curbing inflation without triggering a recession has been notable, with the unemployment rate remaining below its long-run average. However, questions persist about the future of the economy, including whether inflation will continue to challenge central banks and how job market dynamics might shift in a post-pandemic world.
Antulio Bomfim, a former special adviser to Powell and now head of global macro for Northern Trust Asset Management’s fixed-income team, suggested that Powell might focus on broader issues, such as the transition back to a more traditional state of monetary policy. As the Fed navigates this inflection point, Powell’s remarks are expected to provide valuable context on the evolving economic landscape and the central bank’s approach to achieving its dual mandate of maximum employment and stable inflation.
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