Jerome Powell’s Upcoming Address at Jackson Hole: A Focus on Soft Landing

Jerome Powell’s Upcoming Address at Jackson Hole

Two years ago, Jerome H. Powell, the chair of the Federal Reserve, took the stage at the Federal Reserve Bank of Kansas City’s annual conference in Jackson Hole, Wyoming, and delivered a stark message to the nation: bringing inflation down would entail some degree of economic pain. Fast forward to this Friday, and Mr. Powell will once again present his most significant policy speech of the year from that prestigious platform. However, the focus this time is likely to be on a remarkable endeavor—the Fed’s attempt to achieve a relatively painless economic transition, often referred to as a “soft landing.”

Currently, both the Federal Reserve and the broader American economy find themselves at a critical juncture. Inflation has significantly decreased from its peak of 9.1 percent in 2022, with the year-over-year increase in the Consumer Price Index dropping to 2.9 percent as of July. Given this progress, the pressing question for Fed officials is no longer centered on how much economic disruption is necessary to regain control over rising prices. Instead, it revolves around whether they can successfully complete this mission without causing substantial economic harm.

This remains an uncertain proposition. Consumer spending and overall economic growth have surprisingly remained resilient even amid elevated interest rates, which are designed to dampen demand and ultimately reduce inflation. Nevertheless, signs of a weakening labor market are beginning to emerge. Recent revisions revealed that employers added fewer jobs in 2023 and early 2024 than previously estimated. Furthermore, the unemployment rate climbed to 4.3 percent in July, up from 4.1 percent in June and 3.5 percent a year earlier. While this recent spike could be attributed to anomalies in data collection—such as disruptions caused by a hurricane—it may also serve as an early indicator that the economy is teetering on the edge of a recession.

Consequently, this moment is pivotal for the Federal Reserve. Officials have maintained interest rates at a two-decade high of 5.3 percent for an entire year. As they endeavor to navigate a gentle economic descent, they are preparing to ease their restrictive stance. Policymakers are widely anticipated to initiate rate reductions at their upcoming meeting in September.

In his address, Mr. Powell may choose to signal that a rate cut is on the horizon. However, many economists believe he will likely refrain from specifying the extent and pace of any potential rate decreases. The Fed will receive a new jobs report on September 6, which will offer a clearer picture of the economy’s trajectory before the crucial meeting set for September 17-18.