Powell Jackson Hall's heavyweight speech preview: Classic occasions, familiar formulas?
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发表于 2024-8-22 14:38:45
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On Friday local time, Federal Reserve Chairman Powell will give a speech on the economic outlook at the Economic Policy Forum held in Jackson Hole, Wyoming. As the impact of restrictive monetary policy on prices and business activities gradually becomes apparent, it is widely expected that the Federal Reserve may release a signal of policy shift, and the performance of the job market may become an important reason.
Expected to release signals of interest rate cuts
Looking back at history, Jackson Hole was a key channel for the Federal Reserve to release important policy information. In August 2020, the Federal Reserve announced a significant adjustment to its monetary policy implementation framework, adopting the Average Inflation Target (AIT). Before the adjustment, the policy objective of the Federal Reserve was to symmetrically fluctuate the actual inflation level around 2%, but after the adjustment, it has been changed to maintain the average inflation level at 2% for a specific period of time.
In August 2022, after a series of interest rate hikes to address inflation, Federal Reserve Chairman Powell announced that a new round of balance sheet tightening was about to begin. Last December, we promised to maintain the current pace of bond purchases until substantial progress is made towards the dual goals of full employment and price stability. I believe that inflation has reached substantive standards and the job market has made significant progress. At the July interest rate meeting, I and the majority of the committee agreed that if the economy continues to grow comprehensively as expected, it may be appropriate to start reducing the scale of bond purchases this year
This year's meeting may once again become a turning point for the Federal Reserve's monetary policy.
The data released last week showed that the US Consumer Price Index (CPI) in July increased by 2.9% year-on-year, returning to below 3% after three years. After excluding volatile food and energy components, the core CPI rose by 3.2%, the smallest increase since April 2021. Against the backdrop of a stable anti inflation trend, the cracks in the manufacturing, real estate, and labor markets have led the outside world to fully price the September interest rate cut.
Minneapolis Fed President Kashkari stated this week that the risk balance has changed, so the debate about a possible rate cut in September is appropriate. In addition, other Federal Reserve officials, including San Francisco Fed President Daley, have stated in other interviews that they are increasingly confident that inflation is returning to the central bank's 2% target and are open to interest rate cuts.
Sal Guatieri, a senior economist at Bank of Montreal, said in an interview with First Financial News that based on recent statements from the Federal Reserve, there are basically no obstacles to cutting interest rates at the next meeting. He analyzed that the commonly used phrase 'highly concerned about inflation risks' has been removed from the July policy statement and replaced with an acknowledgement that policymakers are now' concerned about the risks of both sides of their dual task '. Policy makers have recently been paying more attention to avoiding a sharp rise in unemployment rates, which is often associated with high interest rates and slowing inflation.
Goldman Sachs Chief US Economist David Mericle stated in a recent report, "Considering the data released after the FOMC meeting in July, we expect Powell to express more confidence in the inflation outlook and emphasize the downside risks in the job market
How to evaluate the job market
The non farm payroll report for July fell short of expectations, sparking concerns about a recession from the outside world. Although multiple data including the service industry and initial unemployment claims have shown economic resilience since then, the debate has not stopped.
Many market participants are concerned that if the economy begins to crack, interest rate cuts will take a relatively long time to boost growth, thereby increasing the likelihood of an economic recession. Jack McIntyre, Global Fixed Income Portfolio Manager at Brandywine Global Investment Management, said, "Policies often have lag effects, and as the Federal Reserve begins its easing cycle, some negative factors may continue to be incorporated into the economy. Even if the Federal Reserve starts in September, it may not be enough to change the economic process into 2025
The direction of the job market is regarded as an important indicator of the economy and is also becoming a key factor for the Federal Reserve to evaluate policies. Former New York Federal Reserve Chairman Dudley previously called for an immediate interest rate cut by the Fed in a column, as the "Sam's rule" of rising unemployment indicating an economic recession was triggered.
The US Department of Labor announced on Wednesday that in the year ending March, US employers added 818000 fewer jobs than initially reported, meaning an average monthly increase of about 174000 jobs during this period, compared to the previously reported 242000. This is the first of two benchmark annual revisions conducted by the department, and if the numbers remain unchanged in the final revision in February, it will be a new high since March 2009.
Some economists suggest that this revision may even be large enough to prompt the Federal Reserve to cut interest rates in September more than Wall Street now expects, or lead to faster rate cuts in the coming months, as recession formation and soaring unemployment rates are often very rapid. George Catrambone, the head of fixed income and trading at DWS, said, "There is reason to believe that the possibility of an economic soft landing still exists... but the risks are two-way. Historically, waiting too long will not achieve a soft landing
Guaitieri told First Financial that the Federal Reserve may still not have a clear predetermined path for interest rate cuts and is more willing to retain its option to observe economic data to determine the appropriate monetary policy. But the current level of interest rates certainly carries risks, and the challenge is how to quickly make correct judgments and respond in a timely manner from potential data fluctuations in the future, thereby reducing the impact on the economy.
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