Economic Event of the Year - What Might Powell Say?

Here we go, the once-per-year economic meeting at which global central bankers will broadcast their major plans. The main event is expected to be Powell's speech and responses to the media, so what might he say? Goldman Sachs and Citigroup economists have voiced their predictions. Powell's speech should be happening on Saturday at 12:00 am AEST.

U.S. unemployment rose to the highest level since October 2021 just last month and the Fed has already faced criticism for not cutting interest rates at its previous meeting. Now, the bombshell revision of data released by the BLS on Wednesday has inflamed the situation. We now see that there were 818,000 fewer jobs than reported.

These two big factors have led to a growing number of investors this week believing the Fed might make a half-point rate cut next month rather than the standard quarter-point cut. Fed funds futures data supported this notion and showed an increased chance of multiple rate cuts this year. This has seemed to change overnight, however, with data suggesting a backstep towards a quarter-point cut. Is this just investor caution? The last thing needed is another botched release like the BLS did this week.

Economists anticipate that Powell will strike a dovish tone in his speech, favouring measures like lowering interest rates to counter economic weakness, rather than focusing solely on reducing inflation. A mention of Wednesday’s significant downward revision in payroll data could suggest that a half-point rate cut is on the table for September, according to Citigroup economists. They are forecasting half-point cuts at both the September and November meetings.

Goldman Sachs economists expect Powell to express greater confidence in the inflation outlook and to note that the Fed is closely monitoring labour market data. This would likely confirm a rate cut in September but leave the size of the cut uncertain until the August jobs report, due on September 6.

While Goldman Sachs economists don’t expect Powell to suggest that the current rate level is inappropriate given the progress on inflation, such a comment could increase the odds of a larger rate cut in September and make a case for further cuts later in the year.