Federal Reserve Chairman Jerome Powell is set to address central bankers, policymakers, and the nation this week. Here is what to expect from his most widely anticipated policy address of the year.
Every year, as is tradition, the Fed chairperson delivers a keynote speech at the Jackson Hole Economic Symposium in Wyoming. The annual address, which has the ability to move global markets, is often a place for the Fed to preview the year ahead or announce changes.
Last year’s address was relatively muted, with no big surprises. This year’s speech will be closely watched, given it comes just weeks ahead of a meeting of the central bank’s monetary policy committee in September that most economists and Fed watchers anticipate will be the occasion for the first interest rate cut since the start of the pandemic.
The Fed raised interest rates in 2022 and 2023 in response to soaring inflation, which peaked at about 9%, and has kept interest rates at 5.25% to 5.50%, the highest they have been since the turn of the century, for over a year. Now, the Fed is poised to cut rates, so investors and economists will be closely listening for any hints about the timing and scale of cuts.
Mark Hamrick, senior economic analyst at Bankrate, said he thinks Powell will tread carefully during his Jackson Hole address and won’t do anything that might rile financial markets.
“He does not need to have a shock and awe announcement or speech because I think that they probably, broadly speaking, think that market expectations are generally in a pretty good place,” Hamrick told the Washington Examiner.
Investors are betting the central bank will lower its target by a full percentage point by the end of the year.
The Fed right now is not in a position in which it would need to “hugely adjust future guidance or expectations,” Hamrick said. He added that Powell and the Fed might want to save some of their ammunition for when the first rate cut is likely announced in September.
One recent development was the disappointing employment report from July.
The economy added 114,000 jobs in July, far fewer than expected, and the unemployment rate rose two-tenths of a percentage point to 4.3%, the Bureau of Labor Statistics reported.
While that was just data from one month, it could indicate the Fed held rates too high for too long and that the labor market is starting to take a whack from the central bank’s restrictive policy stance.
Immediately after the report was released, investors went into a bit of a panic mode, and the stock market plunged. Some were even calling on the Fed to conduct an emergency interest rate cut, although those fears have since subsided.
Brian Riedl, a budget expert at the Manhattan Institute, told the Washington Examiner that given the recent employment report, one question that economists watching Powell’s speech will have is whether the Fed still has the same inflation target as before or whether the central bank appears like it is prioritizing the unemployment rate and stock market over driving inflation back to 2%.
“Everybody’s watching Powell to see for any hint on whether the softening of the stock market and the job numbers are going to push the Fed to start aggressively cutting rates,” Riedl said. “That’s the million-dollar question at this point.”
Outside of the labor market, there are other indications the Fed’s policy stance hasn’t hurt the economy too badly. In fact, GDP growth actually has picked up since the start of the year.
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U.S. GDP, a broad measure of economic output, grew at a strong 2.8% seasonally adjusted annual rate in the second quarter of this year, the Bureau of Economic Analysis reported in a preliminary estimate. For context, the economy expanded at a 1.4% rate in the first quarter of this year.
The Jackson Hole symposium will take place later this week, Aug. 22-24.
