Federal Reserve Chair Jerome Powell will deliver a highly anticipated speech on Friday at the central bank's annual Jackson Hole Economic Symposium that could signal a coming interest rate cut.
The Fed chief's prepared remarks will be the main event of the three-day gathering that will capture the attention of the financial markets. Powell will take the stage at the gathering -- this year themed "Reassessing the Effectiveness and Transmission of Monetary Policy" -- at 10 a.m. EST in Jackson Hole, Wyoming.
Market watchers are not expecting any surprises in his address to a crowd of bankers, economists, monetary policymakers, and members of the press. They are, however, anticipating a hint that the institution will start cutting interest rates as soon as the September policy meeting.
"All we need to hear is something like, 'based on the numbers, it will probably be appropriate to start cutting interest rates soon,' a statement similar to Powell's comments from the last post-FOMC meeting presser," said Mark Malek, the CIO at brokerage firm Siebert, in a note. "Anything other than that can mean big swings up or down for stocks and bonds."
The Fed's preferred inflation gauge -- the personal consumption expenditure (PCE) price index -- slowed to 2.5 percent in June. The core PCE, which strips the volatile energy and food components, eased to 2.6 percent.
"You don't want to wait until inflation gets all the way down to 2 percent, because inflation has a certain momentum," Powell said at a House Financial Services Committee hearing in July. "If you waited that long, you've probably waited too long, because inflation will be moving downward and will go well below 2 percent, which we don't want."
His colleagues appear to think it is appropriate to begin loosening monetary policy.
Minutes from the July meeting revealed that a "vast majority" of participants agreed that the Fed can start cutting interest rates. Additionally, many thought the central bank could have pulled the trigger on a rate cut last month.
One Fed official, who is not a voting member of the rate-setting Federal Open Market Committee (FOMC), believes the institution can start pivoting on policy.
However, the central bank head is not expected to announce the size of a possible interest rate cut next month.
While the futures market has overwhelmingly penciled in a rate cut next month, there is still plenty of uncertainty regarding the size and frequency of coming rate reductions.
"Right now, I'm not in the camp of 25 or 50. I need to see a couple more weeks of data," Harker told the business news network.
Ahead of the September FOMC meeting, officials will digest another jobs report, more inflation data, and another second-quarter GDP growth estimate.
Still, Malek does not believe it would make much difference if it were 25 or 50 basis points.
"Do you think that a quarter percentage-point move in overnight, interbank lending rates is going to affect your life positively? No, it really won't," Malek said. "Mortgage rates and some auto loans are more closely tied to longer maturity yields that are largely controlled by bond traders. Even credit card rates, which are tied to the Prime Rate, will not materially impact monthly payments with only a -25 basis-point move."
In fact, he says, an immense rate reduction could potentially "have an unwanted negative effect."
Ultimately, the financial markets will be watching and paying close attention to Powell's language.
"Every little word will be under the microscope," said Jay Woods, the chief global strategist at Freedom Capital Markets.