Powell’s Final Jackson Hole Speech: Will the Fed Finally Cut Rates?

All eyes are on Jerome Powell as he takes the stage for his last Jackson Hole address. The crypto markets are holding their breath—will the Fed chair drop hints about rate cuts, or serve up another platter of 'cautious optimism'?

Market watchers are parsing every syllable. Traders are already pricing in potential moves—because nothing says 'healthy economy' like gambling on central bank tea leaves.

One thing's certain: Powell's words will send shockwaves through both traditional and digital asset markets. The only question is—which way will the dominoes fall?

Bonus jab: Remember when 'transitory' inflation lasted two years? Good times.

Framework unveiled?

Fed Chair Powell is also set to announce the results of the central bank’s policy framework review at Jackson Hole. The Fed is revisiting changes made to its strategy for monetary policy, tools, and communication last changed in 2020. The central bank adjusts its framework every five years.

The last iteration of the framework adopted a flexible average inflation target, given that in the years preceding 2020 inflation remained slightly below the Fed’s 2% target. Given the recent bout of inflation, and the risks it poses to inflation expectations and consumer sentiment, the Fed is likely to drop that.

“While the adoption of the new framework in 2020 was not the primary factor behind the Fed’s delay and the substantial inflation overshoot, it contributed to this outcome,” said Matt Luzzetti, chief US economist for Deutsche Bank.

As a result, Luzzetti expects Powell’s speech to restore a more preemptive strategy for monetary policy that recognizes risks of supply shocks and return to a balanced view of inflation and the job market.

“The economic environment has changed significantly since 2020, and our review will reflect our assessment of those changes,” Powell said in a speech in May.

Powell noted in that May speech that inflation could be more volatile going forward than in the 2010s and that the US may be entering a period of more frequent, and potentially more persistent, supply shocks.

Powell also said that Fed officials may reconsider “shortfalls” around trying to get to the Fed’s 2% inflation target and average inflation targeting. He also stressed enhancing the central bank's formal policy communications, particularly regarding the role of forecasts and uncertainty.

Investors will watch for whether the Fed rolls out changes to its quarterly Summary of Economic Projections, which contains the famous “dot plot,” a compilation of each member of the FOMC’s expectations for interest rates that year.

Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.