The News
The US Federal Reserve chair Jerome Powell will deliver his most high-profile speech of the year on Friday where he is expected to offer hints about whether the Fed will cut interest rates next month.
He is speaking at the Jackson Hole symposium in Wyoming, an annual conference that brings together the world’s central bankers.
Ahead of the talks that began on Thursday, new data showed that the US economy created 818,000 fewer jobs in the year through March than previously reported, while minutes from the central bank’s July meeting indicated policymakers acknowledged a strong case for slashing rates then.
SIGNALS
Economists watch for hints on size of expected cuts
Powell’s speech is expected to “set the table” for an upcoming interest rate cut, and economists will be listening for hints about how fast and how big the cuts could be. Most economists expect the Federal Reserve to lower the cost of borrowing in September, followed by cuts at two subsequent meetings later in 2024, according to Reuters poll. While in Jackson Hole, Powell could offer some insight into his thinking, but he rarely gets into the specifics of the Fed’s plans in speeches, The Washington Post noted. Other major central banks will likely follow suit: A European Central Bank official said that the eurozone would also probably see looser monetary policy.
Worries mount that the Fed is acting too late
As unemployment has grown and hiring slowed this summer, some analysts fear the Fed has been too slow to cut the cost of borrowing. “They are absolutely behind the curve, and they need to catch up,” Julia Coronado, founder of MacroPolicy Perspectives, told The New York Times. A top Fed official said that because it takes time for the body’s decisions to impact the economy, it has to be careful not to wait too long to start cutting rates: “It’s important that we not assume that if the labor market were to deteriorate past normal, that we could react and fix that, once it’s already broken,” he told The Associated Press.
...But the economy is telling a stronger story
“The economy’s performance isn’t as dim as the unemployment data suggests,” Jon Hilsenrath wrote in Semafor. Stocks have rebounded, and the S&P 500 companies are “on track” for strong earnings growth for the second quarter. “Adjusted for inflation, the economy grew faster in the first half of this year than it did through the 2000s and 2010s. The Federal Reserve Bank of Atlanta estimates the economy is growing at a 2% annual rate in the current quarter, a bit of a slowdown but still far from recession,” Hilsenrath added. “I don’t think we’re in recession,” Claudia Sahm, a former Federal Reserve economist, told Hilsenrath. Sahm has previously observed that recessions almost always accompany a quick 0.5% rise in the jobless rate, as happened this year.