Fed Chairman Jerome Powell is facing a difficult situation ahead of his speech at Jackson Hole on Friday.
Citi's Global Director and Economist, Robert Sockin, stated that the impact of tax increases on inflation is a concerning issue for Powell, and recent labor market data has raised the likelihood of interest rate cuts in September.
Sockin notes that Powell is unlikely to clearly determine the direction in his speech, stating: "Powell is facing political pressure. A lot of data will be released before the September meeting. Therefore, for him, leaning entirely in one direction in the speech is difficult."
This economist said the Fed will prioritize growth objectives in the coming period despite rising inflation. Sockin stated: "We expect core inflation to reach 3% by the end of the year. Although this level is above the target, the Fed may implement some interest rate cuts to support growth amid the risk of recession."
Sockin emphasizes the deterioration in the labor market and the supply-demand imbalance, predicting that Powell will address this issue in his speech. However, he stated that the Fed will 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 economic prospects than surprising." The likelihood of interest rate cuts will largely depend on the developments in inflation and the impact of trade policy in the coming months.
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