Jerome Powell set to deliver Jackson Hole speech amidst criticism from various directions
In a move that could shake up the Federal Reserve, Donald Trump has nominated Stephen Miran to fill an empty seat on the Fed's board. Miran, a close economic advisor to the President, has expressed support for Trump's calls for interest rate cuts. This appointment, if confirmed, could potentially lead to a schism within the Fed, a rarity since 1988.
The current chair of the Federal Reserve, Jerome Powell, is speaking at the August summit in Jackson Hole, Wyoming. However, his speech is under scrutiny due to attacks from the US President and a growing insurgency within his own institution. If confirmed in time for the September 16-17 Fed meeting, Miran could be a disruptive force within the FOMC, representing Trump's interests and pushing for rate cuts.
Mixed economic data is causing difficulties for Powell as he attempts to balance the Fed's dual mandates of maximum employment and stable prices. A gloomy jobs report for July has raised concerns about the health of the labor market, but the unemployment rate remains low at 4.2%. At the same time, a hot producer price index figure has brought worries that tariffs are about to hit US shoppers.
Torsten Sløk, chief economist at Apollo Global Management, stated that tariffs have created a "stagflationary impulse" that complicates the Fed's job. Marc Giannoni, chief US economist at Barclays, said that if Powell repeats his previous warning about payrolls being close to zero and the unemployment rate not moving up much due to supply-side factors, it would put the expectations for rate cuts back closer to 50%.
Bets of a September cut have edged lower in recent days, to an 85% chance as of Tuesday, on the back of the PPI report and Fed officials' comments that have tempered expectations. However, the consumer price index figure last week was relatively benign, leading investors to fully price in at least a quarter-point cut in mid-September.
The appointment of Miran is anticipated to cause tension within the Federal Open Market Committee (FOMC). Some Fed-watchers say Powell's view would depend on whether he remains focused on the unemployment rate as the prime indicator of the health of the US labor market. Derek Tang, of LH Meyer, stated that Miran is there to try to shift the Fed's 'Overton window'.
If Powell faces three dissenters from within his own seven-member board, it could make the Fed's vote in September a closer call than the markets suggest. As the Fed navigates through these challenging times, the outcome of the September meeting could have significant implications for the US economy.
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