The Federal Reserve's annual Jackson Hole conference, scheduled for later this week, will be closely watched by markets as policymakers gather to discuss the effectiveness and transmission of monetary policy. Chair Jerome Powell's speech on Friday morning will be the main focus.
In a Tuesday note, Goldman Sachs released a Q&A outlining key expectations and insights from the upcoming conference.
Q: ‘What is the agenda for the Fed’s Jackson Hole conference?’
The theme for this year’s Jackson Hole conference is "Reassessing the Effectiveness and Transmission of Monetary Policy,” and Chair Powell's speech at 10 AM New York time on Friday will be the highlight, Goldman notes.
The conference will also feature research presentations and speeches from other policymakers on Friday and Saturday. The full agenda will be released on Thursday evening.
Q: ‘What is your current Fed forecast?’
Goldman Sachs forecasts a series of three 25 basis point rate cuts in September, November, and December, with additional quarterly cuts next year, targeting a terminal rate of 3.25-3.5%.
“We think the increase in the unemployment rate to date and other softer signs in the labor market are enough for the FOMC to accelerate the initial pace from the plan implied by the dot plot to cut every other meeting to instead cut at consecutive meetings, but not enough to cut by 50bp,” the bank’s economists said.
However, they acknowledge that a weaker August employment report could prompt a larger cut.
Q: ‘What do you expect Chair Powell to say?’
Goldman economists expect Powell to adopt a slightly more dovish tone compared to the July FOMC meeting, reflecting softer inflation and weaker job growth.
He may express more confidence in the inflation outlook while emphasizing labor market risks, which would likely support expectations of a September rate cut. However, the size of the cut will depend on the upcoming employment data.
Q: ‘Does Jackson Hole matter? Has Powell provided useful monetary policy guidance in the past?’
Powell's Jackson Hole speeches have historically been influential, often providing clear guidance on future Fed policy, Goldman Sachs points out.
For example, his 2020 announcement of flexible average inflation targeting marked a significant shift in monetary policy. His remarks at this year’s conference will also be closely scrutinized.
Q: ‘What are your views on the conference theme, “Reassessing the Effectiveness and Transmission of Monetary Policy”?’
Goldman Sachs economists believe that the pandemic has altered the transmission of monetary policy, with factors like resilient risk sentiment and supply constraints muting the impact of rate hikes.
They also highlight that while monetary policy affects GDP growth relatively quickly, its impact on inflation may be delayed.
This is because some wage and price contracts tend to be long-term, which slows the adjustment process, and social norms often prevent sellers from quickly passing increased costs or market prices onto loyal customers, such as long-term tenants. Furthermore, the "need to receive approval for price hikes from government regulators in some industries can also create delays,” economists explain.
While the conference theme is expected to center on past monetary policy impacts, an important forward-looking question is whether the same factors could reduce the effectiveness of future rate cuts if the Fed needs to stimulate a weak economy.
Given that many homeowners already have low mortgage rates, interest rate cuts might offer less of a boost through refinancing than usual. Despite this, the economists are "not very worried" due to the Fed's significant room to lower rates further.