Hard questions in Jackson Hole focus on near-term tactical choices, the medium-term monetary-policy framework, and the degree of Federal Reserve independence amid political pressure. Jerome Powell is expected to address the economic outlook and the framework review. Investors will watch for signals on whether the Fed will cut interest rates in September and for interpretation of weak May and June job growth as evidence of weakening labor demand. Powell could remain noncommittal given the risk that August data show renewed labor-market tightness and elevated inflation. The framework review may shift away from the 2020 approach that prioritized responding to employment shortfalls and created an asymmetry that delayed tightening.
Investors will be scrutinizing the speech for answers to the near-term question of whether the Fed will cut interest rates next month, as markets are betting. We'll be particularly listening for his analysis of the labor market - whether he interprets the weak job growth from May and June, revealed in a nasty report three weeks ago, as a sign of tumbling labor demand worthy of a Fed response.
Flashback: He is likely to describe a shift away from aspects of the 2020 framework, which called for using interest rate policy to react to shortfalls in employment. That approach created an asymmetry in which the Fed was on hair-trigger alert to cut rates when the job market softened, but no corresponding readiness to raise rates when the job market got too tight, as in 2021. The 2020 framework may have contributed to the Fed being slow to the onset of inflatio
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