Jackson Hole: Powell's Speech to Put Rates, Fed Independence on Center Stage
Federal Reserve Chair Jerome Powell will take the stage Friday morning at the Kansas City Fed’s annual Jackson Hole symposium for what could be one of the most closely watched speeches of his career.
While the economic meeting, set against the backdrop of Wyoming’s Grand Tetons, has long been a venue for major policy signals, this year’s gathering comes at an extraordinary time for the bank. Powell’s term as chair ends next May, and his leadership has been under attack from President Donald Trump, who has publicly berated him for the Fed’s reluctance to cut interest rates, calling him a “stubborn MORON” and “Too Late.”
The theme of this year’s conference, “Labor Markets in Transition,” captures a central challenge of Powell’s tenure. The American workforce is shifting as baby boomers retire and immigration slows, making it harder to judge what full employment looks like and how monetary policy should respond.
Powell will speak weeks after a jobs report showed U.S. employers added just 73,000 positions in July, and payroll totals for May and June were revised downward by more than a quarter-million. Inflation, meanwhile, remains above target and tariffs are beginning to push up import prices.
Two Fed governors, Michelle Bowman and Christopher Waller, dissented from July’s decision to hold rates steady, arguing for an immediate cut to protect the labor market. Investors are betting on a reduction when policy makers next meet in September. According to the CME Fedwatch tool, prices of interest-rate futures point to nearly three-quarter odds of a cut.
But they may end up disappointed. “The Fed is not here to throw dog treats to Washington or Wall Street,” Mark Malek, chief investment officer at Siebert Financial, said in a research note. He warned that Powell is more likely to strike a hawkish tone than to hand out relief.
BNP Paribas analysts expect Powell “will broadly review the US economy’s resilience over recent years, underscore the recovery from the pandemic shock in both activity and inflation, and turn to a discussion of the challenges ahead, without definitively tying his hands for the immediate next steps in policy,” in his Friday speech. “We believe Powell will have difficulty communicating an explicit intention for the September meeting at Jackson Hole because the August payrolls data will be unavailable,” they wrote in a note.
Investors hoping that Powell strikes a dovish tone, they wrote, may be in store for a surprise. That would fit the pattern of past years.
Powell has a history of using Jackson Hole to reset expectations. In 2018, he defended gradual rate increases despite Trump’s criticism. In 2020, he announced the Fed’s shift to flexible average inflation targeting, which allowed the central bank to allow above-target inflation to make up for lower inflation in the past. In 2022, his warning of “pain” for households and businesses as the Fed fought inflation rattled markets worldwide. Last year, he stressed caution, underscoring that rate cuts wouldn’t come quickly.
This year, much of the focus will be on the Fed’s review of its framework statement regarding policy, tools, and communications, which is undertaken every five years. Analysts expect Powell to signal the end of a reference to “shortfalls” introduced in 2020, which treated only weak employment as problematic. A return to the word “deviations” would mean the Fed sees both an overheated and a cooling labor market as risks.
But what goes unsaid is just as important as what is said, according to Joseph Brusuelas, chief economist at RSM. “Sometimes at Jackson Hole what is not on the docket but permeates the conference is far more interesting,” he wrote in a note Thursday. “And the topic in the air is central bank independence and Powell’s legacy as he gets ready to make his final Jackson Hole speech before his term ends in May.”
For Powell, the message may be less about timing rate cuts and more about protecting the Fed’s ability to act free of political interference.
“People may look back wistfully at the Powell Fed as a central bank that was independent, hard-thinking, and trying to do the right thing,” said William English, a professor at the Yale School of Management and former senior Fed official.