Fed Chair Jerome Powell to Speak at Jackson Hole—What to Expect

Federal Reserve Chairman Jerome Powell’s speech is seen on a television screen as traders work on the New York Stock Exchange floor during morning trading on Aug. 25, 2023. Michael M. Santiago/Getty Images

Federal Reserve Chair Jerome Powell will deliver a highly anticipated speech on Friday at the central bank’s annual Jackson Hole Economic Symposium that could signal a coming interest rate cut.

The Fed chief’s prepared remarks will be the main event of the three-day gathering that will capture the attention of the financial markets. Powell will take the stage at the gathering—this year themed “Reassessing the Effectiveness and Transmission of Monetary Policy”—at 10 a.m. EST in Jackson Hole, Wyoming.

Market watchers are not expecting any surprises in his address to a crowd of bankers, economists, monetary policymakers, and members of the press. They are, however, anticipating a hint that the institution will start cutting interest rates as soon as the September policy meeting.

“All we need to hear is something like, ‘based on the numbers, it will probably be appropriate to start cutting interest rates soon,’ a statement similar to Powell’s comments from the last post-FOMC meeting presser,” said Mark Malek, the CIO at brokerage firm Siebert, in a note. “Anything other than that can mean big swings up or down for stocks and bonds.”

Indeed, Powell did indicate at the July post-meeting press conference that a rate cut next month is on the table as officials gain more confidence that inflation is returning sustainably to the central bank’s 2 percent target.

The Fed’s preferred inflation gauge—the personal consumption expenditure (PCE) price index—slowed to 2.5 percent in June. The core PCE, which strips the volatile energy and food components, eased to 2.6 percent.

Powell has previously stated that the Fed can cut interest rates before the annual inflation rate touches 2 percent.

“You don’t want to wait until inflation gets all the way down to 2 percent, because inflation has a certain momentum,” Powell said at a House Financial Services Committee hearing in July. “If you waited that long, you’ve probably waited too long, because inflation will be moving downward and will go well below 2 percent, which we don’t want.”

His colleagues appear to think it is appropriate to begin loosening monetary policy.

Minutes from the July meeting revealed that a “vast majority” of participants agreed that the Fed can start cutting interest rates. Additionally, many thought the central bank could have pulled the trigger on a rate cut last month.

One Fed official, who is not a voting member of the rate-setting Federal Open Market Committee (FOMC), believes the institution can start pivoting on policy.

Speaking in an interview with CNBC on Aug. 22, Philadelphia Fed Bank President Patrick Harker championed lowering the benchmark rate, which is at a 23-year high of 5.25 percent and 5.5 percent.

“I think it means this September we need to start a process of moving rates down,” adding that the Fed needs to ease monetary policy “methodically and signal well in advance.”

Size and Frequency

Ian Shepherdson, the chief economist at Pantheon Macroeconomics, says Powell might indicate that the Fed could employ multiple rate cuts before the year’s end.

However, the central bank head is not expected to announce the size of a possible interest rate cut next month.

While the futures market has overwhelmingly penciled in a rate cut next month, there is still plenty of uncertainty regarding the size and frequency of coming rate reductions.

A trader works as a screen displays a news conference by Federal Reserve Board Chairman Jerome Powell following the Fed rate announcement on the floor of the New York Stock Exchange on Dec. 13, 2023. Brendan McDermid/Reuters

According to the CME FedWatch Tool, investors say there is a 74 percent chance that the Fed will initiate the next cycle with a quarter-point cut.

“Right now, I’m not in the camp of 25 or 50. I need to see a couple more weeks of data,” Harker told the business news network.

Ahead of the September FOMC meeting, officials will digest another jobs report, more inflation data, and another second-quarter GDP growth estimate.

Still, Malek does not believe it would make much difference if it were 25 or 50 basis points.

“Do you think that a quarter percentage-point move in overnight, interbank lending rates is going to affect your life positively? No, it really won’t,” Malek said. “Mortgage rates and some auto loans are more closely tied to longer maturity yields that are largely controlled by bond traders. Even credit card rates, which are tied to the Prime Rate, will not materially impact monthly payments with only a -25 basis-point move.”

In fact, he says, an immense rate reduction could potentially “have an unwanted negative effect.”

Several monetary authorities, from Fed Governor Christopher Waller to Richmond Fed President Tom Barkin, have expressed similar thoughts, asserting that it would not matter if the Fed moved on a quarter- or half-point rate cut in September or at the end of the year.

‘Under the Microscope’

During the three-day market crash earlier this month, which was partly driven by the weaker-than-expected July jobs report, a chorus of market experts has espoused that the Fed must start cutting interest rates before the U.S. slips into a recession.

Although academic and business economists have shrugged off recession fears, various “positive economic reports have reassured investors that the Federal Reserve will be able to cut rates before the economy tips into a recession,” according to John Lynch, the CIO of Comerica Wealth Management, in a note.

Ultimately, the financial markets will be watching and paying close attention to Powell’s language.

“Every little word will be under the microscope,” said Jay Woods, the chief global strategist at Freedom Capital Markets.