The Federal Reserve is preparing for a historic meeting this week. They will be making critical decisions on interest rates and informing the public with clear, helpful analysis on where they see the economic outlook heading. One thing is clear, judging by Federal Reserve Chair Jerome Powell’s remarks at last week’s Jackson Hole Economic Symposium. The slightly dovish tone of his remarks suggested that such news could be in the offing.
Throughout his remarks, Powell reiterated that the path ahead hinges on the fast-changing economic data. This strongly indicates a change in tone from the Fed. They will be more likely to keep an eye out for full employment in their dual mandate rather than inflation alone. Analysts have noted that this big development could signal a more dovish turn from the central bank. In response, they’re reevaluating their game plans to adapt to an evolving economic climate.
Goldman Sachs chief economist David Mericle expects the next Fed statement to recognize the now softening labor market. He does not expect any short-term changes to the guidance. Furthermore, he does not anticipate any clues leading to an interest rate reduction in the October meeting.
“The key question for the September FOMC meeting is whether the committee will signal that this is likely the first in a series of consecutive cuts,” – David Mericle
Mericle expects the latest dot plot to signal two cuts, not three. This is a significant and new departure from the past, in recognition of today’s more perilous economic straits.
These shifts in political dynamics are becoming more powerful drivers of the Fed’s decision-making. In fact, former President Donald Trump often and publicly pressured the Federal Reserve to relax its stance all the way to the floor and then some. Trump stated that the Federal Open Market Committee (FOMC) “MUST CUT INTEREST RATES, NOW, AND BIGGER.” Trump’s pressure makes a difficult environment even trickier as he mounts a second presidential campaign. He’s not done there, either—he wants to use his influence to remake monetary policy.
The political landscape is about to change radically. For starters, Trump was going to replace Powell with whomever succeeded him once his term expires in May of 2026. He’s been vocal about his efforts to primary out Governor Lisa Cook. This piecemeal move could have huge implications for the Fed’s composition and decision-making process.
Yet one new governor Trump appointed— Stephen Miran –has already sounded the alarm on this expected choice. He supports a bigger cut than the ¼ percentage point that most analysts are predicting. Traders now give more than a 70% probability of interest rate cuts in both October and December.
Art Hogan, a market strategist, recently discussed the powerful impact on market expectations caused by Powell’s carefully chosen words. He argued that Powell seems more interested in defending jobless claims than inflation from their stated targets.
“I think he sounds like he did in Jackson Hole, where for the first time he said the data dependency that drives our decision making has changed significantly, and we need to defend our full employment mandate more than we need to defend our inflation mandate,” – Art Hogan
Ideally, Hogan said the tone would be pragmatic though maybe a bit more dovish than hawkish.
We cannot overlook the fact that Trump’s economic perspective is still powerful and relevant. Scott Bessent, former Treasury Secretary under administration acknowledged this impact, stating, “President Trump very sophisticated economically and I think he’s been right almost every turn. Bessent too voiced worries about the Fed lagging in its responses to shifts in the monetary policy landscape.
“The problem has been that the Fed has been behind the curve. We’re hoping they will start catching up in a rather fulsome way,” – Scott Bessent
The Federal Reserve isn’t the only one preparing for its high-stakes meeting. We all are intently observing the first few months to see how it will respond to economic signals and political pressures. The directives adopted at this meeting would be used as a roadmap to reshape the U.S. economy and financial markets in the years to come.