Federal Reserve Chair Jerome Powell will deliver his highly anticipated Jackson Hole speech on Friday at 10 am Eastern Time, with markets focused on the outlook for interest rates amid mixed signals from the labor market and inflation.
Deutsche Bank analysts expect Powell to strike a more balanced tone than at July’s FOMC meeting, when he called the labor market “solid” and inflation still too high.
“The theme of this year’s Jackson Hole Economic Policy Symposium of “Labor market in transition: Demographics, productivity, and macroeconomic policy” could arguably not come at a more important time,” Deutsche Bank wrote.
While payrolls have been revised lower, Powell is expected to emphasize broader measures of labor market slack, such as the unemployment rate, quits rate, and the job openings-to-unemployed ratio, noting that slower labor supply growth could be lowering the breakeven level of monthly payrolls.
On inflation, Powell is expected to maintain a hawkish tilt, suggesting it is still early to fully assess the impact of tariffs, while recent data point to persistent core goods inflation through year-end.
The key for markets will be whether Powell leans toward weaker payrolls or stable slack indicators when signaling the potential for rate cuts, the analysts believe.
Deutsche Bank predicts he will remain open to easing in the near term but stop short of committing to a September move, with a 50 basis point cut seen as unlikely to gain committee support.
“Powell is likely to signal greater openness to cutting rates in the near term but not lock in September,” the analysts wrote.
Powell may also address the Fed’s policy framework, with analysts expecting him to propose rolling back 2020 changes and restoring a primary role for preemption in inflation and labor market policy.
Investors will have to wait until Powell speaks on Friday for clarity. In the meantime, they will get another look at the Fed’s thinking when the minutes from the July meeting are released on Wednesday afternoon.