Jackson Hole Central Bank Symposium Preview: Will Powell "Wait and See" Again?

Source: Excerpt from Golden Ten Data

Federal Reserve Chairman Powell is expected to outline the final steps the Fed will take to curb inflation and reiterate its commitment to completing this task during his speech in Jackson Hole, Wyoming on Friday.

Powell's speech is scheduled to begin at 10:05 a.m. Eastern Time on Friday (22:05 Beijing Time).

As investors have become less certain about the Fed's next move, volatility has increased in recent weeks. According to futures contracts, the market currently expects no further rate hikes this year, but they believe there is a greater possibility of a rate hike at the Fed's November policy meeting. The next meeting will be held on September 19-20.

Internal Divisions at the Fed

While this speech may not be as dramatic as recent keynote speeches, policymakers are entering what Powell calls the most challenging phase of fighting inflation - assessing how much more tightening is needed while remaining uncertain about the impact of their actions on the economy.

Previously, the Fed's path for the future had been clear: continue raising rates to control the fastest inflation in 40 years. However, inflation indicators have fallen significantly from a year ago, and the economy has shown little signs of being affected by monetary tightening.

Fed officials are increasingly divided into two camps. There is disagreement among policymakers about how much work remains to be done:

One camp believes that higher rates have not yet fully taken effect in the economy and is concerned that continued tightening of credit conditions will have a greater impact than expected.

The other camp argues that most of the effects of rate hikes have already been felt. They also want to see more concrete evidence that inflation is moving towards the 2% target.

What will Powell say?

Anna Wong, Chief Economist at Bloomberg America, said, "It is expected that Powell will implement his preferred risk management strategy - gradual action. To better assess the neutral interest rate, the Federal Open Market Committee will need to wait and observe - possibly for a few more meetings."

Powell is likely to use this speech to outline how the Fed will assess whether rates should be raised and when to start cutting them. He will warn against prematurely easing monetary policy.

"I think this will be a theme," said former Fed Vice Chairman Donald Kohn. "For him, clarifying what he means by data dependence and dampening the market's strong reaction to every piece of data would actually be helpful."

Leading economists at Morgan Stanley, including Ellen Zentner, expect him to continue emphasizing that the Fed will rely on data and consider the "big picture," maintaining openness for the September meeting.

In addition, investors are looking forward to Powell's comments on neutral interest rates on Friday. However, Fed officials largely hold an agnostic view on this issue.

Adam Posen, President of the Peterson Institute for International Economics, said, "Powell's speech this time cannot be as concise and clear because the economic outlook is indeed more uncertain." "**