Global financial markets will be firmly focused on Jackson Hole in the Rocky Mountains later this week for hints on when the US’ central bank may start lowering interest rates from a 23-year high.
The Wyoming resort will play host to the Kansas City Federal Reserve’s annual Economic Policy Symposium between 22 and 24 August, bringing together central bank leaders from across the world.
This year’s meeting comes at a crucial time when major central banks, including the European Central Bank and the Bank of England, have started lowering borrowing costs from fresh peaks.
Next in line is tipped to be the US Federal Reserve, considered a trendsetter in Western monetary policy, and all eyes will be on chair Jerome Powell when he gives his speech on Friday.
“Our US economists don’t expect him to pre-commit to any particular rate cut trajectory but to signal that the Fed has gained sufficient confidence that it will soon be appropriate to begin easing policy,” said Jim Reid, head of global economics and thematic research at Deutsche Bank.
Much weaker-than-expected US payrolls data at the start of August helped trigger a market meltdown as investors feared the world’s largest economy could be headed for a recession and piled into into bets that the Fed would be forced to aggressively ease monetary policy.
But later figures, showing softer inflation and strong retail sales, have helped to calm markets, with the previously floated prospect of an emergency rate cut all but ruled out.
“Markets approach this in a much better mood than looked likely two weeks ago as the extreme volatility seen at the start of August seems almost a distant memory,” Reid said.
Money markets are now pricing a major 0.5 percentage point interest rate cut at just a 30 per cent likelihood, down from 55 per cent a week ago.
Instead, Powell’s speech is expected to bolster the case for a quarter-point cut at the Fed’s next meeting on 18 September and further easing later this year.
Markets predict between three and four 0.25 percentage point cuts this year, from the current range of 5.25 to 5.5 per cent.
Jackson Hole also comes at an important moment for US politics ahead of November’s presidential election. Both Kamala Harris and Donald Trump have put the economy at the heart of their campaigns, and any recession fears could strengthen arguments that the US has suffered under Joe Biden’s leadership.
Bank of England governor Andrew Bailey, currently on holiday in nearby Idaho, is due to give a speech at Jackson Hole on Friday. He is expected to give few clues on UK rate-setters’ next meeting in September, with economists considering a rate cut then unlikely.
Philip Lane, the ECB’s chief economist, is also due to speak on Saturday. His comments will come after the latest meeting minutes from the Fed and ECB, due to be published on on Wednesday and Thursday respectively.