Synopsis:

Goldman Sachs anticipates a more dovish tone from Fed Chair Powell at this week's Jackson Hole Symposium, reflecting recent soft economic data. Powell is expected to reinforce market expectations of a September rate cut, though he may leave the specifics of the cut size for future data.

Key Points:

• Dovish Tone Expected:

  • Powell is likely to present a more dovish version of his message from the July FOMC press conference, considering the soft CPI report, weak job growth, and rising unemployment rate.
  • He may express greater confidence in the inflation outlook and emphasize downside risks in the labor market.

• Focus on Labor Market:

  • Powell is expected to reiterate that the FOMC is closely monitoring labor market data and stands ready to support the economy if necessary.
  • Comments like these would likely reinforce market expectations of a September rate cut, while deferring the decision on whether it will be 25bps or 50bps until after the August employment report.

• Potential Surprises:

  • Dovish Surprises: Powell could lower the bar for a larger cut or a longer sequence of cuts by expressing concern about the labor market or suggesting that the current fed funds rate may be too high given the progress on inflation.
  • Hawkish Surprises: Conversely, Powell could emphasize that broad financial conditions remain easy, implying that while the high fed funds rate might not be necessary, it is not an urgent issue.

Conclusion:

Goldman Sachs expects Powell to lean dovish at Jackson Hole, reinforcing expectations of a September rate cut, but possibly leaving the specifics for future data. Dovish surprises could further ease market conditions, while any hawkish comments might suggest that the Fed sees no immediate need for aggressive easing.