Breaking News: Federal Reserve Chair Jerome Powell to Hint at Rate Cuts at Jackson Hole Symposium
Federal Reserve Chair Jerome Powell is set to speak at the Jackson Hole Symposium on Friday at 10 AM, where he is expected to provide clues about a potential rate cut at the September FOMC meeting. This comes after recent core CPI data revealed a 0.165% month-over-month increase, the third consecutive reading at or below a 2% annualized rate.
The focus has shifted from whether the Fed will cut rates to how quickly and significantly it will happen, according to Citi economists. They believe that economic risks lean towards a more significant weakening in labor markets and the broader economy, with the market underestimating the dovish Fed policy risk.
Citi projects 50 basis point rate cuts in both September and November, but Powell is likely to stress that these decisions are "data dependent." The key point of Powell’s speech will be the shift in risks, with concerns about the labor market taking precedence over inflationary pressures.
The latest data indicates cooling inflation and a faster-than-expected softening of the labor market, which could justify a more aggressive pace of rate cuts. Powell may argue that as inflation decreases, the real policy rate increases, necessitating a reduction in nominal rates to avoid overly restrictive monetary conditions.
Furthermore, Powell could point to the quicker loosening of the labor market as a reason to bring policy rates back towards neutral more swiftly. Despite some positive economic indicators, Powell is likely to maintain that the U.S. economy will steer clear of a recession.
With the 'Sahm rule' nearly triggered, Powell’s belief that downside risks to the employment mandate prevail may become stronger. He may use his Jackson Hole speech to emphasize that policy is ready to respond to evolving data, hinting at the possibility of significant rate cuts.
While he may not explicitly guide towards 50 basis point cuts, Powell is expected to leave them as an option on the table. The speech could also pave the way for larger rate cuts, providing a clear macroeconomic rationale to avoid any perception of panic.
In summary, Powell’s upcoming speech at the Jackson Hole Symposium is anticipated to provide insights into the Federal Reserve's stance on rate cuts, with implications for the broader economy and financial markets. Stay tuned for updates on this evolving situation.