Global investors look to read tea leaves from Friday speech by Fed chair

By Sevgi Ceren Gokkoyun

Global markets will closely watch US Fed Chairman Jerome Powell’s speech at the Jackson Hole Economic Symposium in Wyoming on Friday, as hints from his statements will provide clues to the bank’s future monetary policy decisions.

Organized by the Kansas City Fed, this year’s Jackson Hole symposium will showcase many significant developments affecting the global economy.

In March 2022, due to high inflation, the Fed started a tightening cycle, raising interest rates 11 times by a total of 525 basis points, while the bank’s policy rate reached 5.25% to 5.50%, its highest since 2001.

While the Fed left its policy rate unchanged this July for the eighth consecutive month, Powell said a rate cut could be in the offing in September if confidence on inflation rises and the labor market stays strong.

In July, employment fell below expectations and unemployment rose to a nearly three-year high, while recession concerns were fueled in the markets.

These developments prompted expectations in the money markets that the Fed is more likely to cut its interest rates in September by 25 basis points than by 50 basis points, especially after last week’s inflation data showing eased price pressures and strong retail sales.

- Fed takes into account all the data

Satyam Panday, chief US economist at S&P Global Ratings, told Yahoo Finance on Monday that Powell will emphasize that the Fed’s future policy roadmap is data-dependent, while he may also provide insights into what Fed officials think about the effectiveness of monetary policy.

Panday said the market reaction to data since the beginning of the month has been “overly sensitive,” noting that the Fed takes into account all the data rather than separate data releases, adding that he expects a rate cut of 50 basis points this year and 100 basis points next year.

James Knightley, chief economist at ING International, said on Aug. 16 that the Fed will use Jackson Hole as a platform to confirm that the bank believes the monetary policy to be too restrictive, allowing it to start cutting interest rates.

Knightly said inflation is in better shape now than before, which gives space to put more emphasis on the labor market as he says it is showing cooling signs, adding that he expects the Fed to cut rates by 25 basis points in September, though a 50 basis point cut cannot be ruled out.

Ryan Sweet, chief US economist at Oxford Economics, said he does not anticipate new developments from Powell’s speech at the symposium, as the Fed’s data-driven approach and the August employment report could influence the bank’s decision to cut rates by 25 or 50 basis points in September, Yahoo Finance reported on Friday.

Sweet highlighted that Fed officials focus more on the “big picture than tipping the Fed’s hand with regards to near-term changes,” adding that the Fed will “disappoint” those who believe a future roadmap will be signaled at the event, though he added that he expects a 25-basis-point rate cut in September and once again in December.

Steven Kamin from the American Enterprise Institute said Powell’s speech at the symposium could signal that inflation is falling and the currently restrictive monetary policy can be eased in the coming months, estimating one or two rate cuts after September.

*Writing by Emir Yildirim in Istanbul