All eyes are on Federal Reserve Chair Powell, who is scheduled to deliver a highly anticipated speech at the central bank's meeting in Jackson Hole, Wyoming, this Friday.
This annual central bank event has previously been an opportunity for policymakers to preview future interest rate directions. Last year, Powell hinted at a shift toward rate cuts, stating, 'The time for policy adjustment has come,' and that 'he is increasingly confident that inflation is on a sustainable path back to 2%.'
Wall Street generally expects the Federal Reserve to resume rate cuts in September after months of holding steady due to the economic impact of tariffs imposed by President Trump. Meanwhile, Trump and the White House have also exerted significant easing pressure on the Federal Reserve, and a more dovish governor has been appointed.
However, Powell may not provide significant hints at this year's Jackson Hole central bank meeting.
Firstly, some analysts believe that a rate cut in September is not a foregone conclusion, as inflation remains above the Federal Reserve's 2% target and is rising due to tariffs putting upward pressure on prices.
Meanwhile, economists are debating whether the deterioration in employment data is due to weak demand for workers or insufficient supply. If the issue is supply, then a rate cut would exacerbate inflation.
Michael Pearce, Deputy Chief U.S. Economist at Oxford Economics, wrote in a report last Friday, 'The impact of tariffs is manifesting unevenly and will continue to push inflation higher in the coming months. For policymakers, it will be difficult to disentangle the one-time tariff effects from more persistent inflationary pressures.'
Currently, he believes the Federal Reserve will keep interest rates unchanged until December, but a weak August jobs report would change his view.
Market veteran Ed Yardeni has maintained his prediction of 'holding steady' this year, stating that the Federal Reserve will delay interest rate cuts due to persistently high inflation and a resilient U.S. economy.
As for the speech in Jackson Hole, Yardeni Research predicted in a report last Sunday that Powell will be tight-lipped. The report stated: 'He is more likely to be like an 'owl', leaning towards wait-and-see, rather than hawkish or dovish. In other words, he will say that a rate cut in the September meeting is possible, but the Federal Reserve's decision depends on data.'
Bank of America is similarly skeptical about this year's rate cuts, pointing out that Powell stated in July that as long as the unemployment rate remains within a narrow range, he would be satisfied with lower job growth.
This situation now seems to be becoming a reality, with Bank of America stating that Powell's speech in Jackson Hole will provide him with an opportunity for 'consistency between words and actions.' The bank said in a report last Wednesday:
'If Powell wants to lean against a rate cut in September, he could say that given the data at hand, the current policy stance remains appropriate. We note that this wording would allow him to retain the option of a rate cut in the event of a very weak August jobs report, of course, he could also signal a shift to a less restrictive policy stance as appropriate, hinting at a rate cut.'
Given that Wall Street has so thoroughly priced in expectations for a rate cut in September, any hawkish signals would cause severe disappointment in the market, with an impact similar to that of a rate hike.
