Powell to communicate that Fed is open to 50 bp rate cuts: Evercore

In anticipation of Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Economic Symposium, Evercore ISI analysts have indicated that Powell will outline a flexible approach to rate cuts.

According to their note, Powell will use the Friday morning address to frame the Fed’s strategy for reducing rates, highlighting that the central bank is prepared to implement significant cuts if needed.

"We think Powell’s take will be reassuring and consistent with a soft baseline of a string of 25s but he will convey the Fed is open to 50s and the bar for this is not very high," writes the firm.

Evercore ISI anticipates that Powell will affirm the Fed's confidence in inflation trending back towards the 2% target, signaling that rate reductions could commence as soon as September.

However, the note emphasizes that Powell is unlikely to commit to a specific rate cut size at this stage.

“We do not expect a hard steer as to whether the first move will be a 25bp or 50bp cut,” Evercore ISI states. Instead, Powell is expected to suggest that the decision will hinge on the upcoming labor data.

Evercore explains that Powell’s speech will focus on explaining the progress made in curbing inflation and rebalancing the labor market, positioning the Fed to reduce rates.

Evercore ISI notes that Powell will likely describe the Fed as “flexible and nimble,” prepared to adjust policy based on evolving economic indicators.

They expect Powell to emphasize that the pace and extent of rate cuts will depend on the implications of incoming data, particularly from the employment sector.

The analysts also highlight that Powell will address market concerns by reiterating that while the Fed’s immediate plan may involve a series of 25 basis point cuts, there is a readiness to act more aggressively if labor data suggests a need.

“What matters is not the magnitude of cuts per se but the extent to which Powell successfully distinguishes between the data and the reaction function,” the note concludes.