Today’s Fed Chair speech could set the economic course for years.
Federal Reserve Chair Jerome Powell will address the Jackson Hole annual global central banking conference this morning to discuss the state of the economy and the central bank’s response. It will coincide with the release of a key inflation measure for July.
“A close-reading of Powell’s comments on Friday will boil down to whether investors see the Fed chair signaling another 0.75% interest rate hike from the Fed at its next policy announcement on September 21, or whether the Fed will ease its pace of rate hikes and increase benchmark rates by 0.50%,” says Yahoo Finance.
This year marks the first time his speech will be streamed live online, and can be viewed at 10 a.m. Eastern time.
Why it’s important
Powell’s comments will set the tone for how the Fed is going to respond to ongoing inflation, high-interest rates, and its overall outlook on economic growth. The Fed isn’t expected to announce interest rate hikes till next month, but the speech could indicate how hawkish it is going to be.
As we reported last week, Fed officials are sending mixed signals about their upcoming hike in interest rates, following two consecutive months of 75-basis-point hikes in June and July. The Fed has been raising interest rates to slow the rate of spending, to reduce the inflation rate that spiked in June at 9.1%. It may back off from another 75-basis-point hike in response to two months of improvement, which may reduce the possibility of an upcoming recession. A reduced hike of 50-basis-points could lower the economic impact.
Jackson Hole is an annual symposium hosted by the Kansas City Federal Reserve in Jackson Hole, Wyoming. It is a two-day event in Wyoming’s Grand Teton mountains that plays host to central banking chairs from around the world, and is used for making major policy announcements. The event began on Thursday, but all eyes are on this morning’s Powell speech.
“He almost certainly will recommit to the reduction of U.S. inflation to its target of 2%, but without a specific timetable on how long that may take. He must acknowledge that achieving lower inflation will come at a cost to growth and employment while emphasizing that those costs will be smaller if accepted today than postponed to the future,” says Barron’s.
“Investors crave clarity. Yet for a variety of reasons, Powell is unlikely to satisfy them. Ambiguity is more likely. Investors hoping Powell will tell the (Jackson) whole story are likely to be disappointed.”