The world’s most powerful central banker, Jerome Powell, is expected to disappoint investors looking for reassurance that US interest rates have peaked when he gives a much-awaited speech to his peers on Friday.
Topping the bill at the three-day annual conclave of central bankers that begins on Thursday at Jackson Hole in Wyoming, the chair of the Federal Reserve will leave the door ajar for further increases in US borrowing costs over the coming months should inflationary pressures persist.
But after sending markets into a tailspin last year by spelling out the Fed’s determination to tame inflation, Powell is expected to give a more nuanced speech to an audience gathered in the Rocky Mountains resort town.
Share prices fell sharply last year after he ripped up his planned speech and instead delivered a surprisingly hawkish message, but after subsequently raising US interest rates to their highest level in more than two decades, official borrowing costs are now thought to be at or close to their peak.
Analysts said there was still scope for Powell to rattle markets already uneasy about the recent increase in US long-term borrowing costs. The yield – or interest rate – on 10-year US Treasury bonds rose to the highest level in 16 years this month after official figures showed faster than expected growth.
Ronald Temple, the chief market strategist at the investment firm Lazard, said: “Expect Powell to perform a balancing act of highlighting success to date in reducing headline inflation from 9.1% to 3.2% while also acknowledging it’s too early to declare victory.
“I expect Powell to highlight that each meeting is ‘live’, meaning rates can increase further from here and that the Fed will be data-dependent in its assessments. Given low liquidity levels in August markets, any surprises from Powell could move markets meaningfully.”
The gathering of central bankers has been held annually since the 1970s, and at the Jackson Lake Lodge in the Grand Teton national park since 1981. Christine Lagarde, the president of the European Central Bank, will also be speaking on Friday, while the Bank of England will be represented by one of its deputy governors, Ben Broadbent.
Headline US inflation was at 8.5% and the Fed had its key interest rate pegged at 2.25-3% when Powell last spoke at the Jackson Hole symposium. In July, interest rates were at 5.25% to 5.5% after the most aggressive tightening of policy since Paul Volcker, the Fed chair, sent the US economy into deep recession four decades ago.
Steve Englander, an economist at Standard Chartered bank, said: “We expect him [Powell] to present a modestly hawkish medium-term baseline policy stance, allow for risk that the Fed is done hiking but not shut down the possibility of more tightening, while damping expectations of early cuts.
“Powell may raise the prospect of future pre-emptive strikes to limit inflation surges, arguing that the difficulty in slowing inflation and its disproportionate impact on low-income families justify an asymmetric policy.”
Andrew Hunter, the deputy chief US economist at the consultancy Capital Economics, said: “The continued surge in long-term Treasury yields to their highest level since before the financial crisis, as expectations of an economic reacceleration have mounted, sets a fraught backdrop ahead of Fed chair Jerome Powell’s speech at Jackson Hole. But with little evidence that stronger growth will threaten to reignite inflationary pressures, we don’t think there is any need for Powell to dust off his hawkish script from last year’s event.”
Krishna Guha, an analyst at the US investment bank Evercore, said: “The main message will be that the Fed sees progress moderating inflation and rebalancing the labour market but needs both to continue. Expect a balanced assessment with no abrupt hawkishness, but no mission accomplished: the Fed has not come this far to let inflation slip out of its grasp.”
