What should Jay Powell say about the US economy when addressing the Jackson Hole economic policy symposium this week? With volatile data showing weak jobs growth and rising inflationary pressure, the Federal Reserve chair needs to signal the central bank is dealing convincingly with this difficult stagflationary tension in the face of sustained criticism from the US president.
There are three ways to look at the US economy just over half a year into Donald Trump’s second term. Financial markets are taking a traditional demand-side view, using large downward revisions in jobs growth numbers for May and June alongside weaker private spending in the first half of the year to feed their belief that the Fed will cut rates in September. Equity markets like the prospect of cheaper borrowing costs to juice returns.
Although Trump has demanded far lower interest rates, his administration takes a subtly different stance on the economy because it cannot accept the view that its wayward economic policy might have hit demand. Treasury secretary Scott Bessent says the Fed should be looking at a half-point interest rate cut in September because “we are going back into an economy we had in the Nineties”, with deregulation and tax cuts boosting output and productivity growth without inflation.