Chair Jerome Powell will usher in the next chapter in the U.S. Federal Reserve’s inflation battle on Friday, when he’s expected to set the table for an interest-rate cut while reassuring investors that policymakers can stave off a sharp economic slowdown.
Amara Omeokwe and Michael MackenzieDerek Holt, vice president and head of capital markets economics at Scotiabank, joins BNN Bloomberg to break down and preview the latest economic data.
“The question is: Will we have a policy error? That’s why the market’s teetering on edge around the Jackson Hole statement,” said Joseph Brusuelas, chief economist at RSM US LLP. “What we need to hear from the chairman is where the Fed is on the potential policy pivot.” A key question for those watching Powell, particularly in bond markets, is whether another lackluster jobs report would open the door to a jumbo-sized cut next month, or force the Fed to take an aggressive approach to cutting rates in the months that follow. The Fed chief will deliver his remarks at 10 a.m. New York time on Friday at the Kansas City Fed’s Economic Policy Symposium.
“We expect him to acknowledge that conditions are in place for them to begin dialing back policy soon,” said Pooja Sriram, an economist at Barclays. “It’s not clear whether he’s going to explicitly say September or not, but I think the message would be that they seem well-positioned to do that.” Since the market’s spasm in early August, bond traders have trimmed their rate-cut expectations as risk assets have rebounded and recent data — including figures pointing to a continued low level of layoffs and a resilient U.S. consumer — have suggested the economy is not falling off a cliff.Traders are currently pricing in a quarter-point reduction next month and expect a total of 75 to 100 basis points in cuts by the end of the year, down from 100 to 125 on Aug. 2.
“Without that information, Powell cannot definitively say in Jackson Hole they will lower rates 50 or 25” basis points, said Lindsay Rosner, head of multi-sector fixed income at Goldman Sachs Asset Management. “He is going to keep that openness available, preserve optionality as he should. That’s his job.”
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