If I was in Fed Chair Powell’s shoes, I would pat myself on the back and just look to confirm what economists are forecasting, which is for 75bps of rate cuts this year.
Even if I wanted to cut rates by 50bps at the September meeting I would be hesitant to do so out of concern it would smack of playing politics. In other words, a 50bps rate cut would leave the Fed open to being accused of trying to support the Democrats ahead of the November elections.
In July, Donald Trump warned the Federal Reserve not to cut interest rates ahead of the November election. Now he says a lot on the campaign trail but even a 25bp rate cut would draw Republican fire, a 50bps cut would fuel the flames.
If I Was Fed Chair Powell…
So, for that reason alone, if I was in Powell’s shoes, I would not look to rock the boat at Jackson Hole, confirm a near unanimous view of a 25bp September rate cut and leave open the possibility of more to come.
Of course, his shoes are too big for me to fill, so I am just relating what I would do following the logic explained above.
How much will be discounted beforehand and will there be any disappointment?
This is the key question but it seems like an eternity until we get to Friday’s Jackson Hole speech by Chair Powell.
It is only Tuesday but the risk on mood and lower US dollar suggest markets are setting up for a dovish Powell on Friday. This runs the risk of a buy the rumor sell the fact reaction if he is not super dovish although markets will try spin it that way no matter what he says. Â Much might depend on how far markets push the risk on mood ahead of Friday.
US500 DAILY CHART (CFD) – Up 9 days in a roW
For me, the surprise would be if he signals a 50bps rate cut. It remains to be seen whether this would disappoint some but it is a risk
Looking farther ahead, all bets are off the table until we see the August jobs report due on Sept 7 after the weaker July report. The next Fed meeting is on September 17-18.
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