Fed's Powell likely to pave way for second interest rate cut at Jackson Hole

Federal Reserve Chairman Jerome Powell has a chance to make or break the markets this week during the annual Jackson Hole Economic Symposium, as investors, nervous about the possibility of a global recession tipping over into the U.S., wait for clues about central bank policymakers’ plan for monetary policy.

The central banking conference, set to take place this week in Wyoming, comes in the wake of a flutter of worrisome economic activity worldwide, including the inversion of the spread between the yields of 2-year and 10-year Treasury bonds — an occurrence that’s preceded every recession for the past 50 years. While the curve has since steepened, President Trump has continued to pressure the U.S. central bank, and Powell, to make a deeper interest rate cut.

Yet experts caution while there’s no doubt global growth is sluggish — Germany’s economy is shrinking, and China’s industrial output recently fell to a 17-year low — economic data in the U.S. remain, for the most part, healthy. Although manufacturing activity is slowing, job growth is robust; unemployment is low, and consumer confidence is still pretty high.

“What likely is going to happen is he’ll probably signal the likelihood of one cut, 25 basis point cut and probably take a wait-and-see approach,” Brian Pirri, CFP at the New England Investment and Retirement Group, told FOX Business. “I think that’s what he should do.”

Most expect Powell to walk back the “mid-cycle adjustment” comment and set the table for a second rate cut while leaving the door open for additional cuts, if necessary. The approach will likely rattle the markets, which want to see a more dovish Fed.

Fed minutes from the July meeting, released on Wednesday, also revealed that policymakers leaned more hawkish than markets seemed to recognize at the time. More members wanted to maintain interest rates at the current level than there were members who wanted to cut borrowing costs by 50 basis points.

“Powell’s kind of in a lose-lose situation here,” Pirri said, adding, “It’s kind of a conflicting story right now, to some extent.”

Still, most traders — about 93.5 percent — are pricing in a second, modest rate cut during the Sept. 17-18 meeting. A small percentage believe the Fed will leave interest rates unchanged.