Here’s everything to expect from Fed Chairman Powell’s speech in Jackson Hole on Friday

With all the attention on Federal Reserve Chairman Jerome Powell’s policy speech on Friday, the chances of it containing any surprising news seem remote.

After all, the market has made up its mind: The Fed will begin cutting rates in September — and will likely continue cutting through the end of the year and into 2025.

While there are still some questions about the scale and frequency of the cuts, Powell is now left to provide a brief review of where things have been and offer some limited guidance on what’s to come.

“Stop me if you’ve heard this before: I’m still data dependent,” said Lou Crandall, a former Fed official and now chief economist at Wrightson-ICAP, a broker-dealer where he has worked for more than 40 years. He expects Powell to be “unambiguously direct, but details of how quickly and exactly when will depend on the dates now and the meeting. No doubt they will start cutting in September.”

The speech will be delivered at 10 a.m. ET from the Fed’s annual conclave of global central bankers in Jackson Hole, Wyoming. The conference is entitled “Reassessing the Effectiveness and Transmission of Monetary Policy” and runs until Saturday.

If there were any doubts about the Fed’s intentions to adopt a cut of at least a quarter of a percentage point at its September 17-18 open market committee meeting, they were put to rest on Wednesday. Minutes from the July session showed a “large majority” of members in favor of a September cut, barring any surprises.

Philadelphia Fed President Patrick Harker drove the idea even further Thursday when he told CNBC that “in September we have to start a process of lowering rates.”

A key question is whether the first cut in more than four years is a quarter point or a half point, a topic on which Harker would not commit. Markets are betting on a quarter, but leave open a 1-in-4 chance for a half, according to CME Group’s FedWatch.

A half-point move would likely require a substantial deterioration in economic data between now and then, and in particular another weak non-farm payrolls report in two weeks.

“Even though I think the Fed’s base case is that they’re going to move a quarter, and my base case is they’re going to move a quarter, I don’t think they’re going to feel the need to provide guidance that far,” , Crandall said.

In previous years, Powell has used the Jackson Hole speech to outline broad policy initiatives and offer hints about the future of politics.

In his first appearance in 2018, he presented his views on interest and unemployment rates considered “neutral” or stable. A year later, he indicated rate cuts were coming. In a speech amid racial protests in 2020, Powell unveiled a new approach that would allow inflation to be warmer than usual without rate hikes in the interest of promoting a more inclusive labor market. However, this “flexible average inflation targeting” would precede a period of rising prices – leaving Powell to navigate a delicate policy minefield for the next three years.

This time, the task will be to confirm the market’s expectations, also indicating its impressions about the economy and in particular the moderation of inflationary pressures and some concerns about the labor market.

“For us, the key will be the tone of Chairman Powell, which we expect to lean toward a lean” or lower rates, Jack Janasiewicz, chief portfolio strategist at Natixis Investment Managers Solutions, said in a written comment. “Simply put, inflation continues to aim for the 2% target, apparently at a rate that exceeds consensus. Combine this with signs that the labor market is softening and we feel there is no need to maintain a dovish stance.”

The Fed has held its key overnight lending rate steady for the past 13 months after a series of aggressive hikes. For the most part, markets fared well in the higher rate regime, but briefly rallied after July’s rally on signs of a deteriorating labor picture and weakening manufacturing .

Powell is expected to at least give a nod to headwinds as well as the progress the Fed has made in its fight against inflation.

“We expect Powell to express a bit more confidence in the inflation outlook and put a bit more emphasis on downside risks in the labor market than in his press conference after the July FOMC meeting in light of the data release since then,” Goldman. Sachs economist David Mericle said in a recent note.

Goldman is close to consensus market expectations of rate cuts at each of the next three meetings, followed by more easing in 2024 that will eventually cut the federal funds rate by about 2 percentage points — a policy path which will be mitigated, in very general terms, by Powell in Jackson Hole.

Fed chairmen say they are not sensitive to financial market movements, but Powell no doubt saw the reaction after the July meeting and will want to allay fears that the central bank will continue to wait before starting to ease.

“Powell is inclined to support the stock market,” said Komal Sr-Kumar, head of Sri-Kumar Global Strategies. “Repeatedly, he has indicated that rates will go down. They haven’t, but this time, he will.”