Jackson Hole Annual Meeting Review and Outlook: Everyone is waiting for Powell to speak

Source: Elisabeth Buchwald, CNN; Translated by: 0xjs@黄金财经

What do a mountainside resort and an economist have in common? If it weren't for the invitation-only summit hosted by the Federal Reserve Bank of Kansas City each year at Jackson Lake Lodge in the Teton Mountain Valley outside Jackson Hole, Wyoming, then there would be little in common.

It's that time of year again. Over the next three days, top economists from around the world will gather to speak to reporters and investors eager to learn about the economic outlook. But you don't need an invitation to hear what will undoubtedly be the hot topic in Silicon Valley: Federal Reserve Chairman Jerome Powell will deliver a keynote speech at 10 a.m. ET on Friday.

His speech will be crucial not only to the U.S. economy, but also to Federal Reserve officials.

Last month, the U.S. unemployment rate unexpectedly jumped to 4.3%, the highest level since October 2021. Meanwhile, employers hired just 114,000 new workers in July, the second-lowest monthly gain since December 2020. The disappointing data stoked some concerns that the economy could soon fall into a recession — or, worse, already be in one.

The Federal Reserve has come under fire for deciding not to cut interest rates at its last meeting, two days before the July jobs report was released. With inflation just above the Fed’s 2% target amid a cooling labor market, the central bank is widely expected to cut rates in September. But some economists worry that central bankers are waiting too long and that the delay could exacerbate slack in the labor market.

New data released Wednesday by the Bureau of Labor Statistics did little to calm those concerns. Although not yet finalized, the agency’s annual review of employment data showed 818,000 fewer jobs were created in March than initially reported.

As a result, according to federal funds futures data, more and more investors now believe that the Fed may choose to cut interest rates by 0.5 percentage points next month, rather than the more common 0.25 percentage points. Moreover, the data also increase the possibility that the Fed will cut interest rates more than once this year.

Where does Powell stand on this discussion? We will find out on Friday.

Review of the Jackson Hole Conference over the years: More than just talk

In 2023, investors interpreted Powell's speech at Jackson Hole as a signal that the Fed was done with rate hikes, even though Powell said that rate hikes were still possible. The market rose, with the Dow Jones Industrial Average rising 241 points, or 0.7%. Their interpretation was ultimately correct - the Fed has not raised interest rates since July last year.

Powell's 2022 Jackson Hole keynote speech sparked the exact opposite reaction. It showed that officials would not hesitate to fight inflation, even if it meant inflicting "pain" (Powell said) on households and businesses. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all fell at least 3% that day.

After the 2023 Jackson Hole meeting, the Fed subsequently held two rate hikes, each by three-quarters of a percentage point.

Powell is not the only U.S. central banker to use Jackson Hole as an opportunity to preview changes in monetary policy.

For example, in 2010, then-Fed Chairman Ben Bernanke hinted that the central bank could further ease financial conditions as the economy recovered from the Great Recession, saying that "there are policy options to provide additional stimulus." A few months after Bernanke spoke at Jackson Hole, he unveiled a new bond-buying program designed to lower interest rates and stimulate the economy after the financial crisis. This move is now known as QE2, short for quantitative easing.

Later, Bernanke said at the 2012 Jackson Hole conference that a stagnant labor market was a "serious problem." Markets initially fell after Bernanke's speech but ended the day higher. Soon after the Jackson Hole conference, the Fed launched QE3.

In 2016, then-Fed Chair Janet Yellen, now Treasury Secretary, used her Jackson Hole speech to prepare markets for further rate hikes by saying she believed the case for an increase in the federal funds rate had “strengthened in recent months.” The Fed raised rates roughly every three meetings starting in December 2016 until 2018.

What Powell might do

Economists expect Powell’s speech to strike a dovish tone: that is, the central banker is inclined to take steps such as lowering interest rates to stimulate the economy to offset weakness, rather than focusing on reducing inflation.

The question is just how dovish Powell will become.

The mere mention of Wednesday’s sharp downward revision to jobs data suggests a half-percentage-point rate cut is likely at the September meeting, Citigroup economists said in a note Wednesday. The bank’s economists predict half-percentage-point cuts at both the September and November meetings.

Goldman Sachs economists expect Powell to express “greater confidence in the inflation outlook” and likely say officials are watching labor market data closely while noting the Fed’s “ability to support the economy if necessary.”

Such comments would solidify a September rate cut, but the question of the size of the cut remains undecided until after the August jobs report, due on Sept. 6, Goldman economists said in a note earlier this week.

While they don’t expect Powell to say anything that suggests current rates are “not appropriate given the progress being made on inflation,” if he did say so, it would increase the odds for a further rate cut in September and make the case for more at future meetings.

Powell isn’t the only Fed official in attendance at Jackson Hole, though. A host of other central bank heavyweights, including Kansas City Fed President Jeffrey Schmid and Atlanta Fed President Rafael Bostic, will be in attendance for impromptu media interviews that could be more informative about the economic outlook than Powell’s speech.