Later this morning, Jerome Powell, chairman of the Board of Governors of the Federal Reserve, will speak in Jackson Hole, Wyoming, at a symposium hosted by the Federal Reserve Bank of Kansas City. He will deliver a speech titled “Economic Outlook and Framework Review.” 

The speech is highly anticipated not only because it may provide insights into the Fed’s thinking about the future course of interest rate cuts, but also because Powell will probably demonstrate resolve about the independence of the Fed in the face of increasingly aggressive attacks by President Donald Trump. 

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Powell will almost certainly not be dovish about future monetary policy. He is highly unlikely to signal the aggressive rate-cutting that Trump wants. Yes, the employment market has softened over the past few months, but the most recent public and private data present a picture of a reasonably strong economy. The weekly jobless claims data from Thursday this week is consistent with a resilient labor market. Regional banks of the Federal Reserve system project 2% GDP growth for this calendar quarter. Moreover, major consumer-facing companies, such as Walmart and Bank of America, offer a consistent picture of a robust consumer. Personal consumption accounts for 70% of the United States economy. 

The buildout of the infrastructure necessary for artificial intelligence indicates that business spending is generally strong. The bottom line is that the economy is healthy, so why cut rates when inflation is above the Fed’s 2% target? Equally important, the most recent inflation data shows consumer inflation increasing, which again raises the obvious question: Why cut rates? 

But the Fed must be forward-looking. Members of the Fed know that Trump’s tariffs are a tax.

Businesses are currently bearing the burden of the tariffs. Still, as time passes, businesses will pass the cost of the tariffs to the consumer. As this transpires, the economy will very likely slow. The Fed will want to ensure that a slowdown in consumer spending does not become a cascade that could lead to heightened recession risk. So, in order to take out insurance against an abrupt slowdown in economic activity, it is reasonable to project that Powell will telegraph that the Fed will reduce interest rates by 0.25% when it next meets on Sept. 16 and 17.

Powell may note that Fed policy is currently restrictive, which could signal more than one cut before he leaves as chairman next year. Again, Powell will not signal aggressive rate cutting. Such a policy is not necessary, especially when the Fed must ensure that the inflationary effects of Trump’s tariffs do not raise expectations about inflation. Powell and the other members of the Fed must keep inflation expectations well anchored. 

Finally, in what will be his last address at Jackson Hole (Powell’s term as Fed Chairman ends in May 2026), Powell will demonstrate Fed independence in setting monetary policy. He knows that the Supreme Court has clearly indicated that Trump cannot fire the chairman of the Fed. Powell, in clear language, will state that the central bank will conduct policy on the basis of its mandate, low, contained inflation, and full employment. Powell will not make the Fed subservient to Trump’s goal of lowering rates in order to make servicing the federal deficit more manageable. 

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History says that Powell’s speech will probably move financial markets, both stocks and U.S. Treasurys. 

Like the president, the chairman of the Federal Reserve can make headlines. Expect market volatility later today.