What To Expect From Federal Reserve Chair Powell's Speech at Jackson Hole Friday

The chair of the Federal Reserve is set to give a major speech Friday at a pivotal time for the central bank’s monetary policy.

Fed Chair Jerome Powell’s speech at the annual economic symposium at Jackson Hole, Wyo., will be closely followed by financial markets. Investors are looking for signals that the Fed is on course to cut its benchmark interest rate from its current quarter-century high when policymakers next meet in September, as is widely expected. They'll also be listening for any hints about how the Fed will approach rate cuts afterward.

The speech comes as Fed officials are shifting the central bank’s focus from fighting inflation to preventing a spike in unemployment. By law, the Fed is tasked with keeping both inflation and unemployment under control.

Interest Rate Cuts Would Be a Turning Point For the Fed

Should the Fed cut in September, it would be the first time the central bank has lowered interest rates since 2020, when it slashed the fed funds rate to near zero to stimulate the economy after the onset of COVID-19.

The Fed began raising the rate in March 2022 to counteract an alarming spike in inflation. Raising the federal funds rate pushed up borrowing costs on mortgages, credit cards, car loans, and other loans in an attempt to slow the economy by discouraging borrowing and spending.

With inflation now having fallen close to the Fed’s goal of a 2% annual rate, and the job market showing signs of faltering, Fed officials have said they’re considering rate cuts in September.

What Does Jerome Powell Think About Economic Data?

The speech will also be a chance for financial market participants to gauge how Powell is thinking about recent economic data.

The economic outlook has been on a roller coaster ride since the fed chair last made public remarks in July. In early August, a spate of economic reports showed unemployment rising and manufacturing slowing, raising fears that the economy could fall into a recession. Later in the month, reports showing inflation slowing down and retail spending accelerating sent the opposite message.

Many economists expect Powell to signal that September rate cuts are on the table, confirming what he said in a July press conference.

“We expect Mr. Powell to give his clearest signal yet that the FOMC will ease policy in September and at one other meeting this year,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a research note.

Uncertainty Complicates Path Ahead

However, Fed officials in recent speeches have stressed that the central bank’s moves will depend on what economic data shows. They may cut rates more aggressively the more inflation slows and the more the labor market seems at risk of imploding under the weight of high interest rates.

That means Powell is expected not to offer any specifics about how much the Fed will cut rates in September or at future meetings. An open question is whether the Fed will cut rates by a quarter percentage point in September, or go for a steeper half-point cut. 

“Ultimately, we think data dependence by the Fed could limit the forward guidance Powell provides as it will be difficult to pre-commit to a particular trajectory,” Justin Weidner and other analysts at Deutsche Bank wrote in a commentary.