With Fed’s change of course in sight, Powell may opt for a large-scale approach at Jackson Hole

By Howard Schneider

JACKSON HOLE, Wyoming (Reuters) – U.S. economic data gave the Federal Reserve the green light to cut interest rates, financial markets lined up for the first move, and the central bank gave away nearly everything on Wednesday when minutes from its July meeting showed a “vast majority” of policymakers agreed that monetary easing would likely begin next month.

With all that in place, Fed Chairman Jerome Powell’s goal in his opening remarks Friday at the Kansas City Fed’s annual research conference in Jackson Hole may be less about further shaping expectations and more about assessing where the economy is heading ahead of what he called a “substantial” first step.

“I don’t think he needs to do much beyond the July press conference,” said Richard Clarida, a former Fed vice chair who is now a global economic adviser for Pimco, referring to how Powell came out strongly in favor of a rate cut at the Sept. 17-18 meeting in his remarks to reporters after the July 30-31 meeting.

“You’re not going to accomplish your mission,” Clarida said, “but he could look back over the last two years, where we were and where we are, and recognize that they are close” to stemming the worst inflation surge in 40 years.

Powell will take the podium at 10 a.m. EDT (2 p.m. GMT) at a remote lodge in Wyoming’s Grand Teton National Park to address a gathering that has become a global platform for central bankers to shape their views on monetary policy and the economy.

With one exception, Powell’s six speeches at the conference since becoming Fed chair in 2018 have been largely explanatory, designed less to influence near-term policy expectations than to lay out how officials think about broad structural issues or, since the start of the COVID-19 pandemic, to detail the mechanics of inflation.

The year 2022 was an exception, when the Fed struggled to contain public expectations of high inflation: Powell delivered a concise, dynamic speech designed to convey his seriousness about defending the central bank’s 2% inflation target. Some called it his “Volcker moment,” after Paul Volcker, the Fed chief who triggered a recession in the early 1980s by imposing punitive interest rates to break an inflationary cycle.

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It’s a consequence Powell’s Fed has avoided so far. Inflation has reached levels not seen since the Volcker era and, two years later, is about half a percentage point above target. The unemployment rate, at 4.3%, is well below its long-run average of 5.7%. And financial markets seem in sync with the direction the Fed is headed.

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In light of this, former Fed staffers, policymakers and outside analysts said Powell may well return to his explanatory norm, perhaps sketching in general terms how the central bank will approach its next easing cycle or exploring lessons learned over two years about the causes and cures of inflation.

The theme of the conference – the impact of monetary policy on the economy – would be a perfect fit for either.

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