Fed Chair Jerome Powell faces a critical dilemma ahead of his Jackson Hole speech on Friday.
Citi Director and Global Economist Robert Sockin told Bloomberg Surveillance that the impact of higher tariffs on inflation worries Powell and that recent labor market data raises the possibility of a September rate cut.
Sockin noted that it was difficult for Powell to establish a clear direction in his speech, saying, “Powell is currently under political pressure. There is a lot of data to be released before the September meeting. Therefore, it is unlikely he will lean strongly in one direction in his speech.”
The economist stated that the Fed will prioritize growth in the coming period despite rising inflation. Sockin said, “We expect core inflation to reach 3% by the end of the year. While this rate is above target, the Fed may implement a few interest rate cuts to support growth against the risk of recession.”
Sockin highlighted the slowdown in the labor market and the supply-demand imbalance, predicting Powell would highlight this issue in his speech. However, he stated that the Fed wouldn’t be greatly bothered by inflation hovering around 2.25%-2.5%.
According to Sockin, Powell’s Jackson Hole speech will be “more of a cautious assessment of the economic outlook than a surprise.” The likelihood of rate cuts will largely depend on the trajectory of inflation and the impact of trade policies in the coming months.
*This is not investment advice.