Federal Reserve Chair Jerome Powell is set to deliver a highly anticipated speech at the annual Jackson Hole Economic Symposium in Jackson Hole, Wyoming, on Friday at 10 a.m. ET. This year’s address comes amid an unprecedented firestorm on Powell and his fellow FOMC members. What’s more, political leaders, including former President Donald Trump, are out front with their denunciations. Most market analysts expect Powell to strike a reassuring, keep-calm-and-carry-on note today while laying the groundwork for future interest rate changes.
Powell’s speech will almost certainly focus on the independence and importance of the Fed. This is happening amidst Trump’s steady drumbeat of criticism against the country’s central bank and its top employee. Even in Powell’s short tenure, the former president has publicly pressured Powell to lower interest rates. He even discussed firing him from the post after a July Federal Open Market Committee meeting. Through all of this tumult, Powell has continued to double-down on his apparent desire to protect the independence of the Fed.
Political Pressure and Market Expectations
Throughout the year, Powell has come under pressure from public advocacy and political leadership at all levels. Add that to the highly political environment, where Trump openly criticizes the Federal Reserve chair. In each cycle, the chair faces the difficult task of threading the needle between political imperatives and economic constraints.
Analysts say if Powell does testify, he should use this chance to assure Congress that the central bank will remain independent. Dan North, a market analyst, commented, “He’s going to take a jab and talk about fed independence, because what does he have to lose really at this point?”
Market expectations have clearly begun to shift in advance of Powell’s remarks. Over half of investors now expect him to guide markets towards a first rate cut in September. David Mericle, chief U.S. economist at Goldman Sachs, expected Powell to leave little doubt about the appropriateness of a rate cut in his remarks. He is indeed expected to stand behind one. “We do not expect Powell to decisively signal a September cut, but the speech should make it clear to markets that he is likely to support one,” Mericle stated.
Policy Shifts and Historical Context
In the past, Powell’s speeches at Jackson Hole have announced major changes in policy direction. Ever since 2018, these addresses have been making news by foreshadowing important changes to the stance of monetary policy. This year, analysts are expecting that Powell will indicate his intention to reverse the changes that were instituted in 2020. These changes fundamentally transformed the Fed’s original conception of inflation targeting.
As our chief economist Matthew Luzzetti recently outlined, the expansionary effects of these moves are significant. He remarked, “While the adoption of the new framework in 2020 was not the primary factor behind the Fed’s delay and the substantial inflation overshoot, it contributed to this outcome.”
Powell’s speech will likely feature material revision of the Fed’s statement on its long-run objectives. This would represent a welcome departure from raising interest rates in the most traditional and textbook of fashions. Such changes would help increase confidence in the Fed’s commitment. Their current objectives are to maximize employment and stabilize prices.
Maintaining Independence Amid Criticism
Foremost, of course, is the backdrop of continued, dramatic conflict between the White House and the Federal Reserve Board. The central bank’s recent high profile construction project at its largely wall-locked Washington, D.C. headquarters has drawn the ire of the Trump administration as well. This new round of criticism makes Powell’s task of preserving the Fed independence and purview to make data driven decisions all the more difficult.
“He’s done a good job in terms of keeping the Fed’s independence, ignoring the noise and some of the questions he gets, and keeping it focused on the data dependency and the Fed’s dual mandate,” Arone said.
As Powell heads into his big speech he’s confronted not only by a bunch of market expectations, but by a circus of political distractions. He must judiciously walk the tightrope of being responsive to external forces. Simultaneously, he will be true to the core tenets of central bank independence. Arone added, “He’s taken the high road as it relates to the Fed’s independence and some of the pressure he’s clearly getting from the Trump administration. So I expect that he’ll still be careful not to overstep the line.