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On Friday morning, some of the most powerful people in the financial world crowded into a lodge in Jackson Hole, Wyoming to hear the latest announcement from Federal Reserve chair to Rome Powell. Bloomberg's Mike McKee was in the room.
The FED meeting takes place at an unadorned meeting room with deer antler lights hanging from the ceiling and just long flat tables with folding chairs we sit on. It isn't glamorous at all, but it is a beautiful location at least.
What's the energy in the room, like when everyone's waiting for Powell to take the dais.
You know, people in this business and here are pretty used to this sort of thing, so it's not like you're at a rock concert waiting for somebody to show up. But people are interested, very interested in what he has to say, particularly where they're anticipating a rake cut announcement of some.
Sort a rate cut. The Federal Reserve has been holding interest rates high around five and a half percent for a year, but with unemployment creeping up and inflation coming down, pressure has been building for the Fed to cut interest rates, and when Powell entered the room and took the podium, it sounded like he agreed.
The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.
Usually Powell's speeches are a little cryptic, there's not a lot of direct talk, but not this time.
Interestrates are coming down. That's the bottom line.
The FED has decided that the battle against inflation is almost one. They're more confident now that they are bringing down inflation to their two percent target, and they're starting to worry about rising unemployment. So the balance of risks, as they call it, has changed, and it is time to cut interest rates. So everybody is going to expect a rate cut at the September eighteenth meeting.
Today on the show, FED Chair Jerome Powell's announcement from Jackson Hole, Why the FED is signaling that September is finally the time for a rate cut, what that rate cut could look like, and what it would mean for the US economy, the presidential election and beyond. I'm Sarah Holder, and this is the big take from Bloomberg News. Bloomberg's Mike McKee talked to us from a mobile studio in the Tetons as equipment was being broken down around him.
I asked Mike for a little background on the Jackson Hole Conference.
That's an academic conference designed to present economic theories, papers on ideas for doing monetary policy to the policy bakers.
It's officially called the Jackson Hole Economic Policy Symposium, and it's put on by the Federal Reserve Bank of Kansas City.
It's been going on for forty seven years now, but it only really became as big a deal as it is now in twenty ten when Ben bernank came out and announced here that they would start quantitative easing. And since that time BERNANKI and Janet Yellen who followed him, and now j Powell have used this occasion to make announcements that could really change the direction of the economy, like.
Twenty twenty two, for example, when Jay Powell came out and told the financial world that the fight against inflation would mean tough times in the year ahead.
While higher interest rates, slower growth, and software labor market conditions will bring down inflation, they will also bring some pain to households and businesses.
People like Mike who cover the FED are used to reading between the lines. That's because FED chairs like Jay Powell are very careful with what they say in public. A single word from their mouth this can have a huge impact on the global economy. The mention of some pain a couple of years ago was taken as a stroke warning sign and the markets took a dive. But Mike says Powell's message this year had a much brighter tone.
This was one hundred and eighty degrees different the last two years. Powell had a very strict, severe message that the Fed was going to do what it takes. They were not going to waiver. Inflation was going to go away no matter what it took. This year, inflation has come way down and it's headed towards their target. So the FED will never take a victory lap, they'll never say the word soft landing. But they are feeling much better about where the economy is, and I think Powell
felt more relaxed in talking to people. He said at one point, these are my.
Views, that is my assessment of events.
Your mileage may vary.
Your mileage may differ.
I'm not sure what he meant by that, but it did get a laugh in the room.
Inscrutable Dad jokes aside. Mike says, the fact that Jay Powell's throwing in a laugh line or two means that the Fed must be feeling pretty good about where the economy is headed after two years of severity high interest rates and historic levels of inflation. I asked Mike how the Fed landed on now as the moment to say it's finally time to cut rates.
They've been following the inflation numbers, of course, very closely. Their official measure is the Personal Consumption Expenditures Index, which comes out as a part of the GDP numbers. That tells them where they think inflation is in terms of their two percent target. But of course everybody follows the Consumer Price Index. It's the most widely known price index,
and a lot of civilian people watch that. Americans watch that, so they're also very attuned to that, and putting those two together, they get a sense of where inflation is going. And they've also been watching the employment numbers very closely, and for a long time we had very, very high job creation and that worried them because if you're looking for workers and you can't find them, you're going to have to pay more, which could lead to inflation. And
now what they're saying is that's come down. There's not the wage pressure that there was, so we can start thinking about cutting rates because both sides of our measures have started to come down.
Of course, the FED doesn't make its decisions in an economic vacuum. The fact that we're about seventy days out from a US presidential election is impossible to ignore. Powell has often talked about how important he feels it is for the FED to remain independent.
It's a very special American institution and it's one that works to serve all Americans, and absolutely critical to that is staying in our lanes, sticking to our knitting, not running to reach out to the big hot political issues of the day.
The Central Bank is meant to be a political Powell said he takes that duty so seriously that he's led an increasingly private life to ward against any perception that politics is involved in the Fed's decision making. Powell's spoke about this last month in an interview with Bloomberg host and Carlisle co founder and co chairman David Rubinstein.
When you want to go out to let you have a dinner and restaurant, do you worry that people are listening to what you're saying?
They're eavestrapping, so.
That that is exactly what I worried about. I've I have found that I get recognized now and people at the next table are always listening. So we don't really go to restaurants. So what do you do? You just go in a private room, or you don't go to restaurants. If if you're at a restaurant, you need to be in a private room. And if, by the way, if someone at your table were to be well served and start to speak loudly, everyone's hearing that too, So so you got to be We just don't do that for now.
We go to you know, we need at home, a lot at we need a friend's house.
So why would j Powell, someone who's taken such great pains to keep the FED out of the political spotlight, announce a rate cut so close to an election? I put that question to Mike. Do politics impact the way the FED makes these decisions? Is there a perception that the FED is going to cut rates for political reasons?
Well, there might be among campaigns and average people who read comments about it. But FED officials insist, and the historical record shows that electioneers don't change what they do. They have raised rates and cut rates before in election years and shortly before election day. There's no indication that they have ever been biased, and they take great offense at the idea that.
They would be.
Their view is, we have one job, which is to keep inflation down and employment up. That's what Congress told us to do, and so we're going to do that no matter what the outside situation is.
Even though the FED has no political agenda, its decisions do have a political impact. So what does the announcement of a rate cut mean for the presidential campaign, for American consumers and for global markets. That's after the break under the antlers. As economists, academics, and journalists sat at attention in their folding chairs inside the Jackson Lake Lodge, J Powell did the FED equivalent of skywriting his plans for interest rates above the tetons. He said, the time
has come for policy to adjust. Mike McKee, who covers international economics and politics for Bloomberg News, was there, so I asked him what kind of reaction did Powell's remarks get.
The reaction in the room was applause, standard applause. I don't think anybody was surprised, because everybody was kind of expecting that it's time, even though they hadn't said they were going to. But what surprised a lot of people here was the fact that the stock market took off. And I had a couple of FED people say, didn't the markets know this was coming? Everybody else seemed to, so they're happy with that, but it was a bit of a surprise that anybody was surprised.
Mike says. Part of what markets might have been reacting to is the language Paul used. Paul said his confidence has grown, which is again quite direct, especially for a FED chair. After he said that stock surged.
It basically tells them that interest rates are going to go down and keep going down. And stock market, of course, is a forward discounting mechanism, and so if you know that they have started a cycle, and historically they've cut at least three times every time they have started a cutting cycle, then you can start looking out six months, nine months, twelve months and discounting what your future returns might be. So it makes it easier for people to plan.
Why they hadn't necessarily planned before or whether they were just waiting for that, we don't know. But if we knew what the stock market would do, we'd all be rich.
So Powell speech contained enough foreshadowing to jumpstart the market, even though we still don't know the exact scale and pay of the rate cutting cycle ahead.
What do we know.
About how a rate cut would affect the US economy? What are some of the industries that would be most affected.
Well, the first thing you look at is housing and audibobiles because those are very interest rates sensitive. You have to take out a loan because it's a big, expensive purchase, and so the FED looks at the housing industry and
the automobile industry, both of which have suffered. We don't know what the number is the level of interest rates that will bring mortgage rates down enough that will entice people to go out again and start buying cars should start to do better, and then consumer purchases, we hope will increase as credit card rates come down. And we'll
also watch for business investment. It's been strong. We have fiscal spending coming as part of the Inflation Reduction Act to build more infrastructure, so there should be some money coming in on that side as well. It takes a lot longer to hit the economy because it takes will to build a big building.
But those are the things to watch for my a.
Rate cut in the US mean for the rest of the world's economies.
Well, it means a lot, especially to smaller economies which are if dependent on the dollar, react to the dollar because if the dollar is strong, then their currency is going to be weak, and the rest of the world their currencies will strengthen. It's just a question of how
much they strengthen. It will take a while for that to happen, but we've already seen some adjustment in the foreign exchange markets with the euro and the Japanese yen and the British pound the bigger currencies, and that'll start to filter down to the emerging markets as well.
Will Powell speech also have an impact on the looming US election. Mike says that while both candidates would likely welcome lower interest rates when in office, the economic effects on the American consumer might be too small to have a significant impact on the way people vote, especially if interest rates are cut by a quarter percentage point, which is the hoe when the water rate cut many are expecting.
Twenty five basis points isn't going to change anybody's monthly payments more than a few cents, if at all. It might, as a psychological thing tell people that things are getting better, and if people feel better about the economy, they might vote one way or another. The Fed's view is it doesn't have a major effect, but it doesn't matter to them. They're going to do it anyway.
There's still a lot that can change before November, and a lot more data to be released before September eighteenth. That's when the FED meets next and when they're expected to announce how deep these long awaited rate cuts could be.
We will have a number of economic data, including the latest GDP numbers and the latest spending numbers, which will matter to the Fed. Are Americans still spending money? And then we go into the first week of September, which is always first week of the month. There's always a big week because we get numbers on actoring and on employment that matter a lot. And of course we have the jobs report that'll be September sixth, so that's a
date to watch. If nothing goes wrong there, then rake cuts are coming.
The next few weeks will be busy for j Powell. But before the fedcher had to go back to d C, Mike tried to get him to let loose a little. He invited Powell to the famous Jackson Hole rodeo.
He's not going to the rodeo as far as I know. I've invited him, but he is going to yesterday. Yes, he's declined. I think he doesn't feel like hanging out with a bunch of reporters, but.
I don't know why. I don't know why.
Yeah, but he is going on hikes and he and his wife do quite a bit of that when they're out here, and they might do some canoeing or something like that as well.
So the only bulls Powell will see will have to be in the markets. This is the big take from Bloomberg News. I'm Sarah Holder. This episode was produced by David Fox. It was mixed by Alex Sugia. It was fact checked by Adrian A. Tapia. It was edited by Stacy Vennick Smith, Kate Davidson, and Christopher Condon. Special thanks to read Pickert for her rodeo footage. Our senior producers are Naomi Shaven and Kim Gittleson. Our executive producer is
Nicole Beemsterboor. Sage Bauman is Bloomberg's head of podcasts. If you liked this episode, make sure to subscribe and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.
Oh yeah, let's go to.
Everybody's supposed to dress up in Western Where do you have woots?
Oh?
I have boots and I have a hat. I mean, I grew up out West, so I dressed for the occasion. But some of the city slickers or some of the people from other countries are going to have to work at it.
I think you're gonna have to show them how it's done.
It's the reason the team to help out the