Fed Chairman Powell opens the central bank’s annual Jackson Hole symposium Friday with a speech on the challenges for monetary policy.
A deglobalization shock ignited by President Trump’s trade policy; super low interest rates, including $16.7-N in negative-yielding bonds; a never-ending presidential assault on the Fed; and a rising risk of a US and worldwide recession are all topics that he will address.
There are lots of hazards out there, and some of them, including the risk of a hard BREXIT and political protests in Hong Kong, lie outside of the US and are not susceptible to the Fed’s influence.
Fed watchers expect Chairman Powell to do nothing Friday to disabuse investors of the widespread perception that the central bank will reduce interest rates next month. But whether he will open the door to a half-percentage-point cut, which some traders are looking for, or 1% pt that President Trump is calling for is unclear.
Chairman Powell described the Fed’s policy path as a “mid-cycle adjustment” on 31 July after it cut rates for the 1st time in a decade.
The Fed Chairman will avoid feeding the pessimism in the financial markets and seeing it spread more broadly.
If it cuts rates when the domestic economy is doing all right, it will be accused of caving in to pressure from President Trump and Wall Street. If it stands pat, it risks triggering a financial-market disruption that could damage the economy.
My call, President Trump gets it his way.
Making and Keeping America Great!