Goldman Sachs: Powell is expected to show confidence in inflation progress at the global central bank annual meeting and emphasize downside risks to the labor market

According to the Zhitong Finance and Economics APP, as market expectations for Federal Reserve Chairman Powell's speech at the Jackson Hole Economic Symposium on Friday continue to rise, the stock market is currently showing a stable and optimistic trend. This speech will play a key role in shaping market expectations for potential rate cuts in the future.

At the same time, Goldman Sachs outlined several key issues they hope Powell will address during the conference, with the most important being to demonstrate confidence in inflation during the speech.

David Mericle, Chief U.S. Economist at Goldman Sachs Research Department, stated in a recent report: "Given the data released after the July FOMC meeting, we expect Powell to express more confidence in the inflation outlook and emphasize the downside risks to the labor market."

Three consecutive 25 basis point rate cuts are possible

Goldman Sachs predicts in the report that there will be three consecutive 25 basis point rate cuts in September, November, and December, with further quarterly cuts expected next year to bring the rate down to between 3.25% and 3.5%.

The bank argued in its recent report that the recent rise in the unemployment rate, along with other relatively weak indicators in the labor market, should prompt the Fed to accelerate the pace of rate cuts. However, the bank currently does not expect a 50 basis point rate cut.

What are the expectations for the Federal Reserve Chairman?

The Jackson Hole Economic Symposium will be held from Thursday to Saturday this week. The theme of this year's conference is "Reassessing the Effectiveness and Transmission of Monetary Policy." Federal Reserve Chairman Powell will deliver a speech on the economic outlook at 10 a.m. Eastern Time on Friday, which will be a major highlight of the conference.

Goldman Sachs suggests in the report that Powell should pay more attention to the inflation outlook and emphasize the downside risks in the labor market.

Rates are expected to ease soon

The current rate is between 5.25% and 5.5%. Since March 2022, the Fed has raised rates 11 times, and the current rate level has remained unchanged since July 2023. While many banks and analysts expect a rate cut in September, the key issue is not whether the Fed will cut rates, but by how many basis points, and whether there will be further cuts later in 2024.

Although these rate cuts may not immediately change the daily lives of Americans, they provide crucial insights into economic performance and the future direction of monetary policy. These decisions have significant implications, not only for the U.S. economy but also for global financial markets.

Mericle pointed out in the report that the conference theme is expected to be mainly formulated in a retrospective context. He added that any rate cuts may have a smaller than usual boost to cash flows in refinancing channels.

"Given the extent of the Fed's rate cut space, we are not overly concerned about this," he added