Jackson Hole: Will the Fed push back against a September rate cut?

The 2025 Jackson Hole Economic Policy Symposium will be held 21-23 August. This year’s theme is “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy."

Leaving aside the academic part of the event (though this too is of interest to market participants), the key focus will be on whether chair Jay Powell decides to lean into to the market’s certainty that a rate cut is coming in September, or push back against the prevailing thinking.

At Jackson Hole a year ago, Powell said that the “time has come for policy to adjust” just a few weeks before the Fed began cutting rates for the first time since 2020.

State of Play

Stocks have pushed up to record highs and the dollar has softened because markets have gone all-in on the Fed cutting next month.

Recent data has been a green light for risk and further crushed volatility. A weak payrolls report that contained markedly slashed revisions for jobs growth in the last three months, combined with an inflation report showing prices are not getting out of control, has left markets certain on the Fed needing to get on with rate cuts. The market is priced at about 95% chance of a cut in September and prices in 1 or 2 more cuts this year.

In addition to the data, there is relentless pressure from the Trump administration on Powell to cut.

However, Powell may choose this moment to push back against the assumption that a cut in September is inevitable. If he does it could thwart bulls and put a stop to the rally. It doesn’t mean the Fed won’t cut next month, it’s just the Powell will not want to give the market any more rope as it’s already started to get a bit frothy – chatter about 50bps has seen this priced at 7% chance (Powell will definitely push back against this). And with the relentless snipes from Trump – he may just not feel like cutting at all.

Basically, if Powell thinks the market has got this totally wrong he will say so. It may be nuanced – there is still more data to come before the meeting on 16-17 September. A lot will depend on the tone he strikes but I see no reason for Powell to suddenly get dovish.

Fed officials have hardly been echoing what the administration has been touting or falling in behind the market pricing. Chicago Fed President Goolsbee said that the labour market was “strong”, and, referring to services inflation in the CPI print, said that he wants “some more surety that that’s not going to be a persistent inflation shock.” He also said there was “a note of a note of unease from the last CPI and PPI data”. While the headline CPI report was quite benign, the core reading rose more than expected to 2.1%.

Atlanta Fed President Bostic said that “I still have one cut on my outlook” for this year, which is way more hawkish than 2-3 that was being priced by the market after the CPI.

Then we had the PPI report. Core and headline PPI rose 0.9% month-over-month compared to the anticipated 0.2%.Over three-quarters of this increase in producer prices was linked to the index for final demand services (+1.1%), with more than half attributable to margins for final demand trade services, which increased by 2%. The key thing is this – the PPI doesn’t include imports, and the main driver was services, so tariffs are not really a factor here. Inflation may only be getting started, which would be enough for the Fed to stay on the sidelines a while longer.

Labour Market in Transition

And, as the subject of this year’s meeting in Jackson Hole is so aptly chosen, the labour market is changing. Essentially, the Fed can be a lot less worried about slowing payrolls growth because immigration policy has reduced the supply of labour. So, that worrying NFP revisions can be viewed differently to how they might have been viewed in the past. The hawks’ view is that the labour is not as bad as the doves think it is. A decline in weekly unemployment claims seems to suggest jobs are not rolling over. The labour market is way more complex and harder to read than that single NFP report would indicate.

And adding to the problem with assessing the labour market data, we have the added question of data quality. Trump fired Bureau of Labor Statistics (BLS) commissioner Erika McEntarfer, lining up loyalist EJ Antoni to replace her. There seems to be a high degree of conviction in the market about the path of rates based on some pretty shaky assumptions.
Combined, I think that the Fed feels that inflation is probably further away from where it wants to be than employment.

This means that Powell, who speaks on 22 August at the event, will likely say that a rate cut in September is uncertain.

Before this we have minutes from the FOMC’s July meeting being released on Wednesday, 20 August.