Fed chair Jerome Powell’s keynote speech at this year’s Jackson Hole Economic Policy Symposium annual retreat for central bankers will be a crucial event. It is expected to provide insights into whether there will be an interest rate cut in September, given the Federal Open Market Committee last month held its benchmark rate unchanged after four years of steady increases post-Covid pandemic.
Economists at Goldman Sachs are increasingly confident that a 0.25% interest rate reduction is likely when the Fed meets next month but suggest another downside jobs report on September 6 could trigger an even larger 0.5% cut. The Federal Reserve’s rapid hikes in rates following Covid lockdowns were partly driven by concerns over spiraling inflation due to its ultra-loose monetary policy during the pandemic era.
Powell’s speech comes amidst significant uncertainty, both domestically and globally, impacted by diminishing stability anchors such as steady economic growth, predictable forward policy guidance, and minimal technical vulnerabilities in over-leveraged positions and excessive risk-taking by market participants.
El-Erian highlights the importance of Powell’s opportunity to regain control of the economic and policy narrative during his speech on Friday. He believes it is crucial for Powell to clarify the path forward for interest rate cuts, with a reduction in September largely expected by market observers.
Investors will likely be closely monitoring Powell’s words and tone for guidance on whether the recent rebound in both cryptocurrency and stock markets since early August’s bitcoin price crash is sustainable or short-lived.