Jackson Hole Recap: Fed Rate Hikes Likely on Hold for "Several Meetings"

Central bankers at Wyoming summer retreat trade views behind closed doors while endeavoring not to surprise markets in their public comments

Fed Chair Jerome Powell, left, and ECB President Christine Lagarde greet tourists at the Jackson Lake Lodge in Wyoming, while Bank of Japan Governor Kazuo Ueda, center, continues towards the hotel.

Federal Reserve Chair Jerome Powell set a high bar for additional interest-rate hikes, economists said Sunday in their commentary on all the talk at the U.S. central bank’s summer retreat in Jackson Hole, Wyo.

Michael Feroli, chief U.S. economist for JPMorgan Chase, said that the Fed chair certainly did not give a clear signal that more tightening was coming soon. He noted that Powell stressed the Fed would “proceed carefully” and balance the risks of tightening too much or too little.

“We remain comfortable in our view that the FOMC will stay on hold for the next several meetings,” Feroli said.

The caveat to this forecast is if inflation surprises to the upside or the labor market does not continue to soften.

Ian Shepherdson, chief economist at Pantheon, said that Powell’s speech seemed hawkish to some, particularly because the Fed chair made threats to hike again.

But Shepherdson said he thought the Fed “is likely done.”

“Behind the caveats, Mr. Powell’s speech fundamentally was optimistic, though cautious,” Shepherdson said.

Boston Fed President Susan Collins also emphasized patience in an interview with MarketWatch on the sidelines of the Jackson Hole summit.

Other regional Fed officials who spoke “hinted that further action may be needed, but also observed that inflation is moving in the right direction and that the surge in yields would help cool down the economy,” said Krishna Guha, vice chairman of Evercore ISI, in a note to clients.

Traders in derivative markets expect a rate hike in November, but it is a close call, with the odds just above 50%.

The Monday following Jackson Hole has historically been an active one in the markets, across asset classes.

The 10-year Treasury yield ended last week just above 4.2%.

The first test of the careful and patient Fed will come this coming Friday, when the government will release the August employment report.

Economists surveyed by the Wall Street Journal expect the U.S. economy added 165,000 jobs in the month. That would be the weakest job growth since December 2020.

In his speech on Friday, Powell emphasized that evidence that the labor market was not softening could “call for a monetary policy response.”

Economists at Deutsche Bank think an upside surprise in the employment data could provide enough discomfort for the Fed, and raise expectations for further tightening.

Other top global central bankers spoke at Jackson Hole, including European Central Bank President Christine Lagarde, Bank of Japan Gov. Kazuo Ueda and Bank of England Deputy Governor Ben Broadbent.

Guha of Evercore said he detected a careful effort by the officials not to surprise markets.

The exception to this rule might have been Bundesbank President Joachim Nagel, who said in a television interview that it was too early for the ECB to think about a rate-hike pause.