All three influential FOMC members are speaking this week, including Powell at Jackson Hole.
Investors are overwhelmingly anticipating a rate cut when the Federal Open Market Committee (FOMC) next meets on September 16-17. Some 83% of interest rate traders anticipate a 25-basis-point reduction in the federal funds rate in September, according to CME FedWatch.
But that might be a bit too optimistic, given the outlook for inflation. Last week, economists for Goldman Sachs projected that core personal consumption expenditures will rise to 3.2% at the end of 2025, due mainly to the impact of tariffs, as businesses begin to pass more of the costs on to consumers.
In July, the Consumer Price index (CPI) remained at 2.7%, same as June, but the core CPI jumped to 3.1% — up from 2.9% the previous month.
Even more alarming was the results of the Producer Price Index (PPI) for July, the gauge of what producers pay for goods. The July PPI surged 0.9% in July, way past estimates of 0.2%. The 12-month PPI skyrocketed to 3.3% in July, up from 2.3% in June and above estimates of 2.5%. It was the largest increase in the PPI since February. The core PPI jumped to 3.7% in July, up from 2.6% in June.
FOMC members have surely taken notice of these trends – but the question is, will it influence their stance on rates?
The FOMC meeting is still a month away, and there is still a lot of data to come out before then. Most notably, the PCE report for July will be issued at the end of August.
Further, the jobs report for August will come out in early September. The July jobs report showed anemic growth with only 73,000 jobs added. But that actually could serve as a catalyst to lower rates, as a healthy labor market is the other side of the Fed’s mandate. Another bad jobs report could prompt the FOMC to lower rates, even if inflation ticks up.
While we won’t know what happens until mid-September, we could get some clues as to how FOMC board members are digesting the latest economic indicators this week.
Most notably, Fed Chair Jerome Powell is slated to speak on Friday at the annual Jackson Hole Economic Symposium, which is hosted by the Federal Reserve Bank of Kansas City. This event, in Jackson Hole, Wyoming, is considered one of the most important events of the year, featuring a gathering of world economic leaders.
Certainly, inflation, labor markets, and rates will come up during his address, and perhaps Powell will offer clues on where he stands following the release of recent data.
“On Friday, chair Powell could explain how he plans to shape the [FOMC] meeting’s decision-making in his speech in Jackson Hole,” said Bill Adams, chief economist for ComericaBank.
Also this week, the two FOMC members who dissented at the last meeting – Michelle Bowman and Christopher Waller, will speak at a blockchain conference in Wyoming. Both Bowman and Waller dissented because they wanted to lower rates in July, so it will be interesting to hear if they still remain committed to that course. Of course, it is a blockchain technology conference, so there’s a chance the question may not come up.
