Fed Watchers Eye Powell’s Speech For Major Clues

This Friday, the chairman of the Federal Reserve could deliver his last major speech, in a tense economic context and under unprecedented political pressure. Wall Street, the White House, and all markets are waiting for clear signals. Rate guidance, stance on inflation, Fed independence: every word will count, and could weigh heavily.

The Fed at the Heart of the Political Storm

As his speech at Jackson Hole approaches, Jerome Powell faces intense political pressure, led directly by the Trump administration. These tensions have reached a new level in recent weeks, illustrating an increasingly degraded institutional climate between the White House and the Federal Reserve.

Here are the key facts of this escalation :

• Donald Trump continues to demand an immediate rate cut, echoing rhetoric already seen during his first term. The presidential pressure is constant, including on matters more related to internal management than monetary policy.

• The Fed headquarters renovation project in Washington has become a pretext for attack : the White House accused the central bank of poor management of public resources, an unusual criticism at this level of institution.

• Lisa Cook, Fed governor, has been personally targeted by accusations of mortgage fraud on two government-backed loans, an attack interpreted by many analysts as an attempt at internal destabilization.

• Trump has considered firing Jerome Powell, a scenario already mentioned in the past, but so far dismissed for legal reasons. “It seems quite clear that Trump cannot legally fire him. He can obviously exert enormous pressure on him,” notes Dan North, economist at Allianz Trade North America.

In response to these repeated assaults, Powell could use his platform at Jackson Hole to affirm the necessity of preserving the central bank’s independence.

His usual approach, described by Michael Arone (State Street Global Advisors) as “focused on data, ignoring outside noise,” has so far allowed the Fed to maintain its course without entering into open conflict. However, at this stage, any public defense of monetary independence will be closely scrutinized by observers and markets.

Towards a Strategic Turning Point in Monetary Policy ?

Beyond the political turmoil, what will mainly capture attention this Friday are the monetary policy directions Powell might unveil in his speech titled “Economic Outlook and Framework Review”.

Markets anticipate a rate cut as early as the September meeting, although Powell is not expected to commit openly to this move. “We do not expect him to announce a rate cut decisively, but the speech should clearly indicate he favors such a move,” notes David Mericle, economist at Goldman Sachs.

However, several influential members of the monetary policy committee (FOMC), including Jeffrey Schmid, president of the Kansas City Fed, and Raphael Bostic (Atlanta), have expressed skepticism about the urgency of such easing. The labor market slowdown, while real, is described as “solid” by several Fed officials, which could lead Powell to be more cautious.

Another strategic point in the speech could be a partial revision of the inflation framework adopted in 2020, during the Covid crisis. At the time, the Fed opted for a so-called “average inflation targeting” policy, allowing temporarily tolerating inflation above 2 % if it favored employment, notably for underrepresented groups.

This choice has since been criticized, some arguing it contributed to the inflation surge of 2021-2022. According to Matthew Luzzetti, chief economist at Deutsche Bank, Powell could announce a return to a more classical and preventive approach: “we expect the speech to call for a partial rollback of the 2020 changes and restore a central role to preempting inflation.”

In this context, cryptos, notably bitcoin, find themselves in the position of arbiters. Often seen as a hedge against monetary excesses or central bank instability, bitcoin could benefit from a weakening dollar or a delayed Fed turnaround. The growing attention from institutional investors towards cryptos strengthens this dynamic, as each inflection in Powell’s speech can now resonate all the way to decentralized platform order books.

Jerome Powell’s speech at Jackson Hole promises to be a turning point on many levels. If he manages to firmly reaffirm the Fed’s independence without yielding to political attacks, while outlining a credible evolution of monetary policy, he could strengthen the institution’s credibility at a critical moment. However, the room for maneuver is narrow, and expectations contradictory. For crypto investors, the outcome of this speech will not only determine the evolution of rates as Goldman Sachs anticipates, but could well announce a monetary paradigm shift whose effects will need to be anticipated in the coming months.