- Federal Reserve Chairman Jerome Powell is expected to begin the next chapter in his fight against inflation on Friday, setting the stage for interest rate cuts while offering investors reassurance that policymakers can avert a sharp economic slowdown.
- The highly anticipated speech at the Fed’s annual meeting in Jackson Hole, Wyoming, comes at a crucial time for the U.S. central bank and the $27 trillion Treasury market, Bloomberg reported. Powell and his colleagues are moving toward lowering borrowing costs seven weeks before the presidential election, a delicate task that will put them under intense scrutiny. It also comes as officials increasingly focus on the slowing labor market after years of focusing too much on price pressures.
- “The question is: Are we going to get a monetary policy error? That’s why the market is nervous about the Jackson Hole statement,” said Joseph Bruswells, chief economist at RSM US.
- “What we need to hear from the Fed chairman is the central bank’s position on the potential shift in monetary policy,” he added.
- Investors are nervous as they try to anticipate the pace and size of interest rate cuts to come. July labor market data sparked significant market volatility in early August, with the S&P 500 losing more than 6% in three trading days. Government bond yields have risen, and for several days traders have been anticipating a large 50 basis point rate cut by the Federal Reserve in September.
- Traders are now pricing in a quarter-point cut next month, and expect a total of 75 to 100 basis points of cuts by the end of the year, compared with their previous forecast of 100 to 125 basis points on Aug. 2.
