Powell’s Jackson Hole Test: Is the Fed Ready to Start Cutting?

When Jerome Powell opens the Jackson Hole conference at 10:00 a.m. ET, Wall Street will listen for one thing above all: whether the door is open to lowering interest rates in September. Market odds currently lean that way, hovering near the three-quarters mark, but they’ve been fickle—rising on softer labor signals and slipping whenever inflation looks sticky. Powell’s challenge is to thread a needle: acknowledge cooling price pressures without declaring victory, and recognize a softer hiring pulse without inviting a second inflation wave.
Beneath the surface sits a bigger question about the Fed’s rulebook. The inflation-averaging regime embraced five years ago fit a world of chronic under-shooting. The last two years turned that world upside down. Policymakers have spent months debating a reversion to a more straightforward 2% target—one that pays less deference to make-up strategies and more to keeping expectations anchored. As Powell’s final appearance at this mountain summit, today is a natural venue to sketch what comes next, even if only in broad contours.
Traders will weigh his remarks across three lanes. On inflation, official gauges have cooled from their peaks, but the services economy—tied to wages and shelter—still runs warm enough to keep the Committee cautious. On growth, real-time business surveys suggest momentum into late summer, making the case for pre-emptive easing less urgent. On financial conditions, the tug-of-war is visible: the 10-year yield has swung as investors toggle between “cut soon” and “wait longer,” while the dollar and equities have echoed that back-and-forth.
Tone will carry outsized influence. Should Powell stress patience and the need for “more evidence,” traders may nudge the first cut toward later in the fall. Should he lean into risk management—arguing that policy has been restrictive long enough and that it is prudent to guard against an unnecessary slowdown—the market will likely crystallize around a September move. Either way, he is unlikely to box the Committee in; flexibility is a feature, not a flaw, of today’s Fed communication.
Political noise will remain just that—noise. Powell is expected to sidestep the commentary and stick to the dual mandate. For households and companies, the translation is simple: borrowing costs won’t fall sustainably until inflation progress is judged resilient. Jackson Hole won’t finish the debate, but it should narrow the range of outcomes for the autumn meetings and, by extension, for mortgages, car loans, and corporate finance.