Each year, the Kansas City Federal Reserve hosts one of the most important economic symposiums in Jackson Hole, Wyoming. This major event is attended by leading central banks in the US and around the world.
While dozens of central bankers, politicians, academics and economists from around the world visit the Federal Reserve Bank of Kansas City, Friday's keynote address will be the focus: Fed Chairman Jerome Powell's speech.
This year's symposium comes at a critical time when the Fed has begun an aggressive tightening of its monetary policy. Beginning in March of this year, the US central bank raised the federal funds rate for the first time since 2018. Moreover, they have raised rates at each of the last four FOMC meetings. In March, the rate hike was 25 basis points. In May - by 50 basis points. And up 75 basis points in June and July.
The Fed has also announced that it will start to taper or shrink its asset balance sheet. However, based on information from the Statistics Research Division, as of July 26, 2022, the assets of the Fed were $8.89 trillion. Considering that their assets were approximately $0.9 trillion in 2007, it is extremely difficult for the Fed to reduce its assets. The only notable reduction came in September 2019, when the Fed reduced its balance sheet from $4.5 trillion to $3.77 trillion.
Economists and analysts disagree on the content of Powell's Friday keynote speech. Some analysts suggest that market participants are preparing for Powell's extremely hawkish speech. While others are expecting a dovish stance from Powell, assuming the Fed will start cutting back on its aggressive rate hikes based on recent economic reports pointing to an economic downturn in many sectors, such as new home sales and a disappointing US manufacturing index report.
Most likely, Powell will first reassure the American public that they are doing everything in their power to reduce inflation. Powell will then use his standard course of action and state that all decisions are data-driven and thus reject any specific timeline for when they start to cut back on the number and frequency of each rate hike.
The Fed will hold its next FOMC meeting on September 20-21, a week after the release of the CPI inflation index for August.
While there is much debate and uncertainty about the tone and conduct of Powell's keynote address, Powell will continue to maneuver between the current economic downturn and the current rate of inflation.
The likelihood that the Fed will be able to make a soft landing will be difficult at best and impossible at worst.
