In a speech delivered at Jackson Hole today, Federal Reserve Chairman Jerome Powell messaged a possible rate cut next month.
As data has been contradictory regarding whether inflation was at risk of rising or unemployment heading lower, expectations for a rate cut in September have declined in recent weeks. Today, expectations are around 100% following Powell’s missive.
The Pivot.
Chairman Powell, after reflecting on their dual mandate, messaged a possible cut as follows:
“Putting the pieces together, what are the implications for monetary policy? In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside—a challenging situation. When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate. Our policy rate is now 100 basis points closer to neutral than it was a year ago, and the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance. Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
A rate cut would please President Donald Trump, who has hammered Chair Powell for being late to the game. The President has placed incredible pressure on the Fed, alluding to questionable activities at the Bank and, at times, considering an attempt to remove the Chair.
As Chair Powell’s term expires next year, an attempt to remove Chair Powell makes little sense. Additionally, concerns exist about maintaining the Federal Reserve’s independence. A removal of Powell would certainly cause chaos in the markets – something the Administration should want to avoid.
Regardless, it now appears a rate cut is around the corner, which aligns with the White House’s preference.
The chattering classes are already making bets on who will take over the Fed following Powell’s exit. It will undoubtedly be someone who aligns more closely with the President. Markets hope it will be someone who guards the Fed’s independence.