Goldman: Jerome Powell will sound ‘confident’ about inflation in his speech in Jackson Hole

The stock market is currently showing stability and optimism, anticipation is growing the upcoming speech by Federal Reserve Chairman Jerome Powell at the Jackson Hole Economic Symposium on Friday. The speech is likely to play a crucial role in shaping market expectations regarding possible future interest rate cuts.

In parallel, Goldman Sachs has outlined several key themes that Powell is expected to address during the conference, with one of the most important being that he will demonstrate his confidence on inflation during his speech.

“Given the data released since then, we expect Powell to show somewhat more confidence in the inflation outlook and place somewhat more emphasis on downside risks to the labor market than he did in his press conference following the July FOMC meeting,” said David Mericle, chief U.S. economist at Goldman Sachs Research, in a recent report.

Three consecutive interest rate cuts of 25 basis points each are possible

In the report, Goldman Sachs predicts a series of three consecutive interest rate cuts of 25 basis points each in September, November and December. Further quarterly cuts are planned next year. The goal is a final interest rate between 3.25 and 3.5 percent.

The bank argues in its latest report that the recent rise in the unemployment rate, along with other weaker labor market indicators, should prompt the Federal Open Market Committee (FOMC) meeting scheduled for Wednesday to accelerate rate cuts. However, the bank does not currently expect a 50 basis point cut.

What is expected of the Fed Chairman?

The Federal Reserve's Jackson Hole Economic Symposium is taking place this week from Thursday through Saturday. This year's theme is “Reassessing the Effectiveness and Transmission of Monetary Policy.” A highlight of the conference will be Chairman Jerome Powell's speech on the economic outlook, scheduled for Friday at 10 a.m. EDT.

In the report, Goldman Sachs suggested that Chairman Powell should focus more on the inflation outlook and give greater importance to downside risks in the labor market.

“We expect Powell to deliver a more dovish version of his message at the press conference following the July FOMC meeting, given the weak CPI report, weak job growth numbers and the continued rise in the unemployment rate since then,” Mericle wrote.

Goldman Sachs expects interest rate cut soon

The current interest rate is between 5.25% and 5.5%. The Federal Reserve has raised the interest rate eleven times since March 2022, and the current level has been unchanged since July 2023. Although many banks and analysts expect interest rate cuts in September, The key question is not whether the Fed will cut interest rates, but by how many basis points and whether further cuts can be expected later in 2024.

While these rate cuts will not immediately change the daily lives of Americans, they provide important insights into economic developments and the future direction of monetary policy. Such decisions have significant implications and affect not only the U.S. economy but also global financial markets.

Mericle noted in the report that the conference topic is expected to be addressed largely in a retrospective context, adding that any rate cut will likely boost cash flow through the refinancing channel less than usual.

“Given the Fed's ample scope for cuts, we are not very concerned about this,” he added.