Jerome Powell will speak on Friday at the annual economic symposium in Jackson Hole at a time when US President Donald Trump ramps up his attacks against the Fed chair, while experts warn of signs of a ‘bubble’ and a sharp correction in stocks.
Investors have already discounted that the Fed will resume rate cuts at its September meeting.
But the scenario is not so certain: if Powell suggests that inflation from Donald Trump’s tariffs remains a threat, the stock rally could be in the air.
Markets
Futures are pricing in a 25 basis point cut in September with about a 75% chance. But the data is mixed: on the one hand, consumer prices are rising at a moderate pace and the labor market is showing signs of fatigue; on the other, wholesale costs rose to a three-year high in July, fueling fears of inflationary pressures.
Investors are well aware that Jackson Hole is critical: in 2022, Powell halted a strong rally when he pledged aggressive rate hikes to tame inflation.
Trump’s political pressure
This year’s scenario is complicated by the White House. President Trump has been attacking the Fed almost daily and Powell personally, accusing him of delaying interest rate cuts.
On Wednesday, President Donald Trump called on Federal Reserve Governor Lisa Cook to resign on the basis of allegations that she falsified bank documents and property records to acquire more favorable loan terms. The allegations have not been confirmed, and she herself has said that she would not step down.
Many believe that the conflict with Cook is also part of a broader effort to interfere in the central bank’s decisions.
Amid a high-pressure political situation, Powell faces daunting options as he must show independence without ignoring the markets.
Risks
The Nasdaq has already lost 2.4% this week, with technology stocks bearing the brunt. The S&P 500 has fallen 1.2% and the Dow Jones is down 0.4%. If Powell leaves open the possibility of a delay in cutting interest rates, the turmoil could intensify.
“Investors should be careful,” analysts warn, “because an event that is usually considered boring and predictable can turn into a loud message from the Fed to the market.”
With markets already on edge, Powell’s speech could be a turning point. A “yes” to cutting rates would give new impetus to a rally that has already driven valuations to heights that some analysts consider dangerous. A “not yet” can blow up the fragile balance and trigger a violent decompression.
