Fed Chairman Jerome Powell is facing a dilemma ahead of his speech at Jackson Hole on Friday.
Citi's director and global economist Robert Sockin told Bloomberg Surveillance that the impact of higher tariffs on inflation is concerning Powell, and recent labor market data has raised the possibility of rate cuts in September.
Sockin notes that Powell is unlikely to clearly define a direction in his speech, saying: "Powell is currently under political pressure. A lot of data will be released before the September meeting. Therefore, it is difficult for him to lean entirely in one direction in his speech."
This economist stated that the Fed will prioritize growth in the upcoming period despite rising inflation. Sockin said: "We expect core inflation to reach 3% by the end of the year. Although this level is above the target, the Fed may implement a few rate cuts to support growth in the face of recession risks."
Sockin emphasized the downturn in the labor market and the supply-demand imbalance, predicting that Powell will highlight this issue in his speech. However, he stated that the Fed would not be overly concerned if inflation fluctuates around 2.25%-2.5%.
According to Sockin, Powell's speech at Jackson Hole will be "more cautious in assessing the economic outlook than surprising." The likelihood of rate cuts will largely depend on inflation developments and the impact of trade policies in the coming months.
