Jerome Powell will make his last stand at Jackson Hole

Mint

3 days ago

Federal Reserve Chair Jerome Powell will take the stage next Friday at the Fed's annual Jackson Hole Economic Symposium to deliver what may be the defining speech of his career. The speech won't be lengthy—last year's version clocked in at just over 15 minutes—but with his term as chair ending next May and the Fed's performance under attack by the Trump administration, Powell may see Jackson Hole as his last or, at least, his best chance to cement his legacy and make the case for the central bank's independence.
The annual symposium, hosted by the Federal Reserve Bank of Kansas City, attracts the world's most influential central bankers, who will meet on Aug. 21-23 at the Jackson Lake Lodge in Wyoming's Grand Teton National Park. This year's conference, titled 'Labor Markets in Transition," will focus on structural forces such as demographics, productivity, and immigration that are reshaping the U.S. job market and the broader economy. The theme also speaks to the central challenge of Powell's term: how to navigate structural changes in the economy while fulfilling the Fed's dual mandate of price stability and maximum employment.
Steering monetary policy in the face of political hostility has become a parallel challenge this year. President Donald Trump, whose second term began on Jan. 20, has berated Powell for the Fed's failure to cut interest rates, calling him a 'stubborn MORON" and 'Too Late." Trump has also accused Powell of mismanaging the $2.5 billion renovation of the Fed's Marriner S. Eccles building in Washington, D.C., and suggested firing the Fed chair before his term ends. The White House is already vetting potential replacements, focusing on candidates willing to cut rates quickly and, in some cases, restructure the Fed.
Powell's reluctance until now to lower the federal-funds rate from a current target range of 4.25%-4.50% stems chiefly from concerns that Trump's tariff policy may worsen inflation, which ran at an annual rate of 2.7% in July, as measured by the consumer price index.
Political interference in central-bank affairs has precedent. Pressure from the Nixon administration in the 1970s helped push then–Fed Chair Arthur Burns to keep interest rates low despite rising inflation, a decision that contributed to double-digit price growth. Burns' successor, Paul Volcker, was forced to raise rates to nearly 20% to break inflation, sparking a deep recession.
More recently, Turkey's president repeatedly ousted central-bank governors who raised interest rates, sending inflation above 80% and eroding the Turkish lira's value against the dollar. The lira has fallen by 82% in the past five years.
Once a central bank is seen as an extension of the ruling party, its ability to control prices can quickly collapse.
Powell joined the Fed Board of Governors in 2012, and was nominated as chair by Trump in 2017. He assumed the role in February 2018, and was later reappointed by President Joe Biden to a term that began in May 2022. This will be Powell's 13th year attending Jackson Hole, and it may be his last. Although his term as chair runs until May 2026, few expect him to stay on as a Fed governor until that term ends in January 2028.
Powell's tenure as chair has been defined by shocks, in particular the eruption of the Covid-19 pandemic in the U.S. in early 2020, which triggered the fastest and deepest economic contraction since World War II. The Fed was forced to take extraordinary policy actions, including emergency rate cuts and unprecedented bond buying, to prop up the economy and infuse liquidity into the financial system.
When inflation surged in 2021—as a result of these actions, critics say—Powell's initial assessment that it would be 'transitory" proved wrong. Inflation eventually hit a high of 9.1% in June 2022, damaging the Fed's credibility and necessitating one of the most aggressive tightening campaigns in Fed history. Fed officials hiked rates 11 times, starting in March 2022, lifting the federal-funds rate from near zero to more than 5%.
The effort was largely successful. The Fed's preferred inflation gauge, the core personal consumption expenditures, or PCE, price index, has fallen to 2.8% annually without triggering the recession that many economists feared, although inflation remains stubbornly above the central bank's 2% annual target. Unemployment, meanwhile, has ranged from 4.1% to 4.3% in recent months. By the Fed's own standards, this qualifies as a version of the elusive soft landing.
The path forward looks more challenging, however, and less certain. Wage growth has slowed from a 6% annual rate in 2022 to about 3.9%. U.S. employers added just 73,000 jobs in July, and payroll totals for May and June were revised downward by more than a quarter-million. Inflation readings have moved higher this summer, and tariffs are beginning to push up some import prices.
Core CPI, which excludes food and energy, rose by 0.3% in July, the largest increase since January, while the annual rate of inflation hit 3.1%. The producer price index, a measure of wholesale inflation, jumped 0.9% last month, the largest monthly increase in more than three years, the Bureau of Labor Statistics reported on Thursday. The data indicated that tariffs could be causing businesses to raise the prices they charge one another, which probably will lead to higher consumer prices over time.
'You have to think of this as still quite early days" for tariff-related inflation, Powell said in July.
Reciprocal tariffs on U.S. imports, which the White House has imposed in stages this year, are 'likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment," Powell has said.
Trump and his advisors notably disagree.
In Powell's view, tariffs complicate every decision the Fed might make from here. Cut rates too aggressively and risk fueling inflation. Hold rates steady at current levels and risk further erosion in job growth and higher unemployment.
All of this should make for a 'live," or undecided meeting when the Federal Open Market Committee, the Fed's policy arm, convenes again on Sept. 16-17. The fed-funds futures market currently puts more than 92% odds on a quarter-percentage-point rate cut in September, which would be the first reduction this year, although two Fed governors dissented from the FOMC's decision in July to leave rates unchanged, arguing the Fed should have cut rates at that meeting to prevent further deterioration of the labor market.
Treasury Secretary Scott Bessent suggested on Wednesday that the Fed might consider cutting rates by half a percentage point in September, given recent job-market data.
At the same time, some prominent investment analysts and economists aren't convinced of the need for a September rate cut. Given the latest inflation reports, 'we see risk of the Fed potentially cutting fewer times than market expectations," wrote Chris Senyek, chief investment strategist at Wolfe Research, in a note on Aug. 14. Jackson Hole, he added, may be seen 'as a chance for Fed Chair Powell to take a hawkish stance on interest-rate policy."
Every five years the Fed undertakes a review of its monetary-policy framework. As part of this year's review, officials are contemplating a potential change in how the Fed evaluates employment.
William English, a former senior Fed official and current professor at the Yale School of Management, expects the central bank to return to describing 'deviations" from maximum employment, rather than 'shortfalls," a small semantic change that matters. It implies that both an overheated and a cooling labor market are problems to be addressed, giving the Fed equal justification to raise rates when the job market is too hot or cut them when it cools.
Powell won't preview the Fed's September interest-rate decision at Jackson Hole. But his speech, titled 'Economic Outlook and Framework Review," can still send important signals about how the Fed will assess the economy, account for tariffs, and communicate in the future.
Powell will spend much of his Aug. 22 speech, which begins at 10 a.m. Eastern Time, addressing that framework review, which the 19 members of the FOMC will vote on at some point later this summer. Past reviews have led to lasting changes such as formal inflation targeting, changed forward guidance, and altered labor-market goals.
This year's review could establish principles for how to deal with supply shocks, and re-evaluate the balance between the two sides of the Fed's dual mandate. Any adjustments to the framework could enshrine policy changes that last beyond Powell's tenure. That is one way to protect the Fed's ability to act on its mandate without having to argue for its independence.
Trump's public pressure campaign has made monetary policy a national political story. That is just fine with Fed critics, who disdain Powell's 'data dependent" approach to setting rates, the Fed's asset-buying binge, and what they consider the institutional bloat of recent years. But the attention also carries risks, in particular the risk that any policy decision will be seen as politically motivated.
If the Fed loses credibility, its rate moves may become less effective and the dollar may suffer.
Fed officials declined to comment.
To be sure, the Fed's independence has never been absolute. The central bank exists at the pleasure of Congress, and ultimately depends on public support. The Fed operates within the political system, not outside it.
Powell seems to understand what's at stake. 'My sense is that he sees his legacy as preserving the independence of the Fed," says Joe Brusuelas, chief economist at RSM US.
That legacy won't be sealed at Jackson Hole, but the conference will showcase how Powell balances three separate and increasingly intertwined roles: managing an economy in transition, navigating political hostility, and refining a decision-making framework strong enough to withstand interference by any politician or party. If he can show that the Fed will continue to judge the economy on its merits, explain its reasoning clearly, and preserve the tools it needs to do its job, he may achieve more in the long run than timing rate changes perfectly.
Jackson Hole sits at an elevation of 6,200 feet, where the thin air sharpens some minds and makes others lightheaded. This coming week, it will test more than altitude tolerance. It will measure whether the U.S. central bank can still breathe on its own.
English, for one, is unsure. 'People may look back wistfully at the Powell Fed as a central bank that was independent, hard-thinking, and trying to do the right thing," he says.
As in the mountains, everything depends on your view.
Write to Nicole Goodkind at [e-mail]