What to anticipate from Fed Chair Powell's address on Friday in Jackson Hole.

• The Fed Chair Jerome Powell will give his policy speech at 10 a.m. ET at the central bank's annual conference in Jackson Hole, Wyoming.
• Despite the focus on the presentation, the likelihood of it revealing any surprising information appears slim.
• In past years, Powell has utilized Jackson Hole speeches to present general policy plans and offer hints regarding future policy directions.

Despite the anticipation surrounding Federal Reserve Chair Jerome Powell's policy speech on Friday, it is unlikely to contain any surprising revelations.

The Fed is expected to begin reducing interest rates in September and continue doing so until the end of the year and into 2025, as the market has already made its decision.

Powell must now provide a brief overview of the past and offer limited advice on the future, as there are still uncertainties about the extent and frequency of the reductions.

"Lou Crandall, a former Fed official and now chief economist at Wrightson-ICAP, stated that they are still data dependent. He anticipates Powell to be directionally unambiguous but specifics about the pace and timing will depend on the data between now and the meeting. There is little doubt that they will start cutting in September."

The Fed's annual conference of global central bankers in Jackson Hole, Wyoming, titled "Reassessing the Effectiveness and Transmission of Monetary Policy," will take place from 10 a.m. ET on Saturday.

The Fed's intentions to enact a quarter percentage point cut at the Sept. 17-18 open market committee meeting were confirmed Wednesday. Minutes from the July session revealed that a vast majority of members supported a September cut, with no surprises expected.

Philadelphia Fed President Patrick Harker emphasized the need to lower interest rates in September during a CNBC interview on Thursday.

A question of guidance

Is the first reduction in more than four years a quarter point or half point, a topic on which Harker would not take a stance? Markets are predicting a quarter reduction but leaving open a 1-in-4 chance for a half reduction, according to the CME Group's FedWatch.

In order for a half-point move to occur, there must be a significant decline in economic data, including another weak nonfarm payrolls report in two weeks.

Although my base case is that the Fed will move a quarter, and I believe the Fed's base case is the same, I don't think they will provide any guidance on this matter this far in advance, according to Crandall.

In past years, Powell has utilized Jackson Hole speeches to present general policy plans and offer hints regarding future policy directions.

In 2018, Powell presented his views on neutral interest and unemployment rates. A year later, he announced rate cuts. In a speech during racial protests in 2020, Powell introduced a new approach that allowed inflation to run higher without rate hikes to promote a more inclusive jobs market. However, this "flexible average inflation targeting" would eventually lead to surging prices, leaving Powell to navigate a challenging policy landscape in the following three years.

The market's expectations are being confirmed, but there are some concerns over the moderating of inflation pressures and the labor market.

"The key to us is Chair Powell's tone, which we anticipate will be dovish, or leaning towards lower rates, as stated by Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions in written commentary."

Listening to markets

The Fed has maintained its key overnight borrowing rate for 13 months after a sequence of aggressive rate increases. Despite the higher rates, markets have generally performed well. However, there was a brief market rebellion following the July meeting due to indications of a deteriorating labor market and a weakening manufacturing sector.

Powell is predicted to acknowledge some economic challenges and the Fed's advancements in battling inflation.

According to Goldman Sachs economist David Mericle, in a recent note, it is expected that Powell will exhibit more confidence in the inflation outlook and give more weight to downside risks in the labor market compared to his press conference following the July FOMC meeting, considering the data that has been released since then.

Powell in Jackson Hole will outline a policy path that will lead to rate cuts at each of the next three meetings, followed by more easing in 2024, resulting in a reduction of about 2 percentage points off the fed funds rate, which is in line with market expectations.

Powell will likely attempt to alleviate concerns that the central bank will delay easing monetary policy after the July meeting, despite chairpersons claiming insensitivity to financial market fluctuations.

"According to Komal Sr-Kumar, head of Sri-Kumar Global Strategies, Powell is likely to back the stock market. He has consistently predicted that interest rates will decrease, and although they haven't yet, this time Powell is determined to make it happen."