For many months, Jerome Powell has been struggling to maintain a precarious balance between the US Federal Reserve's two mandates—price stability and full employment—while, according to the latest macroeconomic figures, these seem increasingly difficult to reconcile. On Friday, during his speech at the traditional Jackson Hole Symposium, the Fed Chairman once again summed up the complexity of the situation: "The risks to inflation are tilted to the upside, and the risks to employment are tilted to the downside—a delicate situation. When our objectives are under pressure, our framework requires us to find a balance between the two." Jerome Powell's task is all the more difficult as the Fed is under increasing political pressure. Donald Trump, after long and relentlessly attacking "Jerome Too Late Powell" for his supposed slowness to react, is now targeting another FOMC member, Lisa Cook, who is said to be close to the Fed Chairman. The strategy couldn't be clearer (see his post on his Truth Social network, included in this week's chart): force rapid monetary easing by forcing recalcitrant members to resign. Until now, Jerome Powell had responded to these attacks with a certain stoicism, favoring the status quo and a strictly data-driven approach (data dependence). But his Jackson Hole speech marked a rather surprising shift by shifting to the dovish side.
As we pointed out in our previous Monday meeting, it seemed logical to us that Jerome Powell would leave all options open ahead of the September FOMC meeting. In a context where the market was already almost certainly anticipating a rate cut, we even thought a slightly hawkish tone would have been preferable to rebalance expectations. However, by repeatedly emphasizing the "downside risks" now weighing on employment, the Fed Chairman admitted that the "shift in the balance of risks could justify an adjustment in our policy stance." In other words, the door is clearly open for a rate cut at the next meeting in September. A door that will now be difficult to close, as the markets seem so prepared for this scenario.
This shift in rhetoric comes as a surprise compared to the Fed Chairman's more measured interventions in recent months. It also appears at odds with the minutes of the July meeting (which nevertheless took place before the deterioration in the latest employment figures), published a few days before Jackson Hole, where a majority of Fed officials were more concerned about inflationary pressures than the slowdown in the labor market. It remains to be seen whether this shift reflects Jerome Powell's sole opinion or a more widely shared view within the Fed. However, there is little doubt that marked disagreements will emerge at the next meeting.
