
(Bloomberg) — Federal Reserve Chair Jerome Powell is expected to map out final steps in the central bank's campaign to tame inflation, and reinforce its commitment to finishing the job, when he speaks Friday in Jackson Hole, Wyo.
While the address may not contain the same drama as keynotes in recent years, Powell's speech at the Fed's annual confab of global central bankers comes as policymakers enter what he's called the most difficult stage of the inflation fight — calibrating how much more tightening is needed, with little certainty about how their actions have affected the economy so far.
Until recently, the way forward had been clear: Keep raising interest rates to bring the fastest inflation in four decades under control. Now, as inflation continues to cool, disagreements among policymakers are emerging over how much more work is left to do. Powell will likely use his platform this week to outline how the Fed will assess whether rates should go higher and determine when it's time to start cutting them.
"He will caution against easing too soon. I think that's going to be a theme here," said former Fed Vice Chair Donald Kohn. "It would be actually helpful for him to spell out what he means by data-dependence, tamping down the very strong reaction of markets to each piece of data."
Powell is
The gathering comes as monetary policymakers around the world are
Since Powell's famously blunt
Policy lags
One faction argues that higher rates have yet to fully work their way through the economy, and worry that an ongoing tightening of credit conditions will have a bigger impact than intended. A
As investors have become less certain about what to expect next from the Fed, volatility has risen in recent weeks, with the market's fate seeming to hang on every new piece of economic data. Markets currently do not expect another rate increase this year, according to futures contracts, though they see a greater chance of a hike at the Fed's Oct. 31-Nov. 1 meeting than at its next gathering on Sept. 19-20.
Jackson Hole will give Powell more room to home in on key components of his strategy, including the Fed's focus on more than just inflation reports.
"We expect him to continue to stress that the Fed will be data-dependent and consider the 'totality' of the data, keeping September a live meeting," Morgan Stanley economists led by Ellen Zentner said in a recent note to clients.
Neutral rate
A resilient economy in the face of rapid rate hikes has also fanned speculation that the so-called
Investors are looking for Powell to weigh in Friday. But Fed officials have largely taken an agnostic view of the question — their latest estimates published in June suggested they thought it remained unchanged from prior to the pandemic at 2.5% — and Powell is unlikely to deviate from that approach. "Honestly, we don't know" where the neutral rate is, he told lawmakers in March.
In his first Jackson Hole speech as Fed chair,
Last year, with inflation at 40-year highs, Powell's address took the latter tack. This year, it may be time to revert to the earlier scenario.
"There is no way Powell's speech can be that tight and clear this time, because the economic outlook is genuinely more uncertain," said Adam Posen, president of the Peterson Institute for International Economics.
"Central bank decision-making in some sense is easier when you have policy wrong, and you have a long way to get to where you should be," Posen said. "It's more difficult when you have to sort through being close to the right policy but not sure you're there, and that's where the Fed is now."