Fed Chairman Jerome Powell notes timing and pace of rate cuts will depend on data

What do a mountain resort and economists have in common? Not much, except for the annual invite-only summit hosted by the Kansas City Federal Reserve at Jackson Lake Lodge near the Teton mountains in Wyoming.

It’s that time of year again. For the next three days, top economists from around the world will gather to discuss the economy while reporters and investors eagerly search for clues about the future. The main event is Fed Chair Jerome Powell’s speech on Friday at 10 am ET, which everyone will be watching closely.

Powell’s speech comes at a critical time for the U.S. economy. Last month, the unemployment rate unexpectedly rose to 4.3%, the highest since October 2021, and employers hired only 114,000 new workers, the second-lowest number since December 2020. This has led to fears that the economy could be heading for a recession, or might already be in one. The Fed has faced criticism for not cutting interest rates at its last meeting, just before the disappointing jobs report. With a slowing job market and inflation slightly above the Fed’s 2% target, many expect a rate cut in September. However, some worry the Fed waited too long, making the job market worse.

New data released on Wednesday showed there were 818,000 fewer jobs in March than originally reported, increasing the chances that the Fed could cut rates by half a percentage point instead of the usual quarter-point next month, and possibly more than once this year.

Powell’s speech might give some insight into his thoughts. At last year’s Jackson Hole meeting, investors thought Powell hinted that the Fed was done raising rates, and they were right—the Fed hasn’t raised rates since July. But in 2022, his speech had the opposite effect, signaling that the Fed would be tough on inflation, even if it hurt households and businesses, leading to a market drop and two big rate hikes afterward.

Previous Fed chairs have also used Jackson Hole to hint at policy changes. For example, in 2010, Ben Bernanke hinted at more financial easing after the Great Recession, which led to a major bond-buying program known as QE2. In 2016, Janet Yellen, now Treasury Secretary, used her speech to prepare the market for more rate hikes.

Economists expect Powell to take a cautious approach this time, focusing on stimulating the economy rather than just controlling inflation. However, how far he’ll go in that direction is still unclear. If he mentions recent job data, it could suggest a larger rate cut in September. But Powell’s speech might not be the only important moment—other Fed officials at the event could also share valuable insights during media interviews.