“Markets on Edge as Powell Prepares to Address Monetary Policy at Jackson Hole Conference”

The Federal Reserve’s annual Jackson Hole conference is set to take place later this week, drawing significant attention from markets as policymakers convene to discuss the effectiveness and transmission of monetary policy. Chair Jerome Powell’s speech on Friday morning is expected to be the focal point of the event.

In a recent note, Goldman Sachs outlined key expectations and insights for the upcoming conference. The theme for this year’s gathering is “Reassessing the Effectiveness and Transmission of Monetary Policy,” with Chair Powell’s speech scheduled for 10 AM New York time on Friday. The conference will also feature research presentations and speeches from other policymakers over the course of Friday and Saturday.

Goldman Sachs forecasts a series of three 25 basis point rate cuts in September, November, and December, with additional quarterly cuts expected next year. The bank’s economists believe that recent softness in the labor market justifies an accelerated pace of rate cuts, although the size of the cuts will depend on upcoming economic data.

Looking ahead to Chair Powell’s speech, Goldman economists anticipate a slightly more dovish tone compared to the July FOMC meeting, reflecting concerns about softer inflation and weaker job growth. Powell may emphasize labor market risks while expressing confidence in the inflation outlook, potentially setting the stage for a rate cut in September.

Historically, Powell’s Jackson Hole speeches have been influential in providing guidance on future Fed policy. For example, his 2020 announcement of flexible average inflation targeting marked a significant shift in monetary policy. This year’s conference is expected to be closely watched for any hints about the Fed’s future direction.

The conference theme, “Reassessing the Effectiveness and Transmission of Monetary Policy,” is particularly relevant in light of the pandemic’s impact on the economy. Goldman Sachs economists believe that factors like resilient risk sentiment and supply constraints have altered the transmission of monetary policy, potentially reducing the effectiveness of rate cuts in stimulating economic growth.

Looking ahead, the effectiveness of future rate cuts may be limited by factors such as low mortgage rates for many homeowners. Despite these challenges, economists are optimistic about the Fed’s ability to support the economy through further rate cuts.

In conclusion, the upcoming Jackson Hole conference promises to provide valuable insights into the Fed’s thinking on monetary policy and its implications for the economy. Chair Powell’s speech and the discussions among policymakers are likely to shape market expectations in the coming months. Investors will be closely monitoring the conference for any signals about the Fed’s future policy direction and its response to evolving economic conditions.