Fed's Jackson Hole : Powell's Speech to Highlight Inflation, Labor Risks

Fed's Jackson Hole: Powell's Speech to Highlight Inflation, Labor Risks 

The Federal Reserve's annual Jackson Hole conference will be held from Thursday to Saturday, focusing on the theme "Reassessing the Effectiveness and Transmission of Monetary Policy." The main event is Chair Jerome Powell's speech on the economic outlook, scheduled for Friday at 10 a.m. New York time.

Powell's previous speeches at Jackson Hole have often provided key insights into his views and have influenced market movements. According to Goldman Sachs' David Mericle, Powell is expected to show more confidence in the inflation outlook while emphasizing risks in the labor market, given recent data. This aligns with Goldman's forecast of three consecutive 25 basis point rate cuts in September, November, and December. A dovish surprise could occur if Powell hints that the current funds rate is too high, while a hawkish tone might involve stressing that financial conditions are still relatively loose.

Goldman's Q&A preview touches on several aspects of the conference. The theme centers on the effectiveness of monetary policy, with Powell's speech being the highlight. The remainder of the conference will include research presentations and discussions, with the agenda and related materials being released before each event.

Regarding the Federal Reserve's future actions, Goldman predicts three 25bp rate cuts over the next few months, followed by more gradual cuts next year. This expectation is based on the current labor market softening, which the FOMC may address with consecutive rate reductions rather than larger, less frequent cuts. A weaker-than-expected August employment report could prompt a larger cut in September.

Powell's speech is anticipated to echo his July FOMC meeting comments but with a slightly more dovish tone, reflecting recent softer inflation and employment data. This could confirm market expectations of a September rate cut while leaving the decision on the size of the cut dependent on upcoming employment data.

Past Jackson Hole speeches by Powell have often influenced market perceptions, with remarks on topics such as rate cuts, the Fed's policy framework, and the pace of tightening shaping expectations. His comments this year will likely continue to provide crucial guidance.

On the conference theme, Goldman discusses how the transmission of monetary policy affects the economy, using their financial conditions index (FCI) to analyze the impact. They note that various factors, such as resilient risk sentiment and limited refinancing needs, have muted the effect of rate hikes during the pandemic. However, some factors, like bank tightening, have amplified these impacts. The conference may focus on these dynamics and consider whether future rate cuts might face similar dampening effects, although Goldman believes the Fed still has sufficient tools to stimulate the economy if needed.