One of the more storied headlines this year has been President Trump’s disappointment with the Fed for not cutting rates. We should all know by now that the President cannot fire a Fed Chair simply because he/she is not lowering interest rates to their liking. Now, that we’ve got that out of the way, let’s turn our attention to what Powell & Co. could have in store in terms of monetary policy for the remainder of the year.

The Fed Chair has been relatively consistent with his messaging of late. Specifically, policy is “well positioned” and the voting members are in “no hurry” to cut rates. This forward guidance at the Powell’s recent Semiannual Monetary Policy testimony before both houses of Congress was a pushback of sorts to comments from Fed Governors Waller and Bowman who indicated they could possibly support a rate cut at the July FOMC meeting.

However, the U.S. Treasury (UST) market seemed to have been looking for any positive clues they could find suggesting a rate cut could come sooner than expected. As a result, when Powell recently stated that “many paths are possible” in terms of policy outcomes and he “wouldn’t take any meeting off the table”, that was just what the bond market ordered. The thought of the door being opened for a July rate cut pushed the UST 10-year yield down to a low of 4.18% to begin the month of July.

Then came the June jobs report. While inflation data have continued to show a ‘disinflation’ trend in recent months, the other part of the Fed’s dual mandate, employment, has been resilient, some would say surprisingly so. In fact, one could make the argument that if the labor market data were showing signs of definitive cooling, like last summer, Powell may have already implemented a rate cut by now. But, against the aforementioned bond market backdrop, in somewhat of an odd twist, the June employment data were being viewed as a potential catalyst for that July rate cut. Once again, though, the labor market data revealed a relatively solid setting, and set in motion the belief, which we agree with, that this report more than likely rules out any easing move later this month.

So, if the markets are still in status quo mode with respect to the Fed, then what comes next? Attention has now shifted to the September convocation where the odds of a rate cut are placed at about two-thirds for such a move, as of this writing.

We have been constantly beating the drum about how highly data dependent Powell & Co. currently are, and that fact has not changed one iota. With the September FOMC meeting relatively far away calendar-wise, the policymakers will be receiving a nice amount of new labor market and inflation data. That being said, perhaps the bond market won’t have to wait until September 17th for official forward guidance.

Indeed, as investors have witnessed in recent years, the Kansas City Fed’s annual Jackson Hole Economic Policy Symposium has served as almost an informal Fed meeting. While no actual policy moves will be occurring, Powell has used this venue to communicate any potential changes to monetary policy that could be forthcoming. This year’s event is scheduled to take place August 21 – 23 and the theme is “Labor Markets in Transition: Demographics, Productivity and Macroeconomic Policy”. Sounds like a perfect setting for a Fed Chair, doesn’t it?

As we said, there’s still a lot of economic data to process, and Powell recently stated that, if there is going to be the first signs of tariff-induced inflation, it should begin to start showing up in inflation reports over the coming months. That got us thinking…what if upcoming CPI/PCE Deflator reports do show signs of not just disinflation being removed, but actual reflation occurring? Interestingly, the timing of this inflation data could also be occurring right around the September FOMC meeting.

While our reasonable case scenario is still for one to two rate cuts this year, to quote former Fed Chair Alan Greenspan…that would be a conundrum for Powell.