An Economic Soft Landing, or a Rockies Letdown?

Jay Powell’s big policy speech tomorrow is expected to focus on a slowing labor market and the outlook for interest rate cuts.Credit…Kevin Mohatt/Reuters

All eyes on Jackson Hole

After a tumultuous stretch, the S&P 500 is tantalizingly close to record territory as investors see the Fed at a pivotal juncture in its efforts to pull off the once unthinkable: a soft landing.

Jay Powell, the Fed chair, is set to deliver a key policy address on Friday at the annual symposium of central bankers in Jackson Hole, Wyo. Economists and investors widely expect him to signal that the central bank is finally ready to begin lowering interest rates.

“This is his narrative-setting speech,” Julia Coronado, founder of MacroPolicy Perspectives, told The Times. “The overall narrative is: We are going to do whatever it takes to keep this soft landing going.”

But a soft landing is hardly a given. Economic fears have grown in recent weeks as data indicates a slowdown in hiring and a pullback by consumers. That appears to be weighing on the Fed: Minutes from last month’s rate-setting meeting showed that, barring a surprise, “the vast majority” of officials viewed a rate cut in September as “appropriate” — a sign that they were increasingly comfortable with cutting borrowing costs in the face of rising unemployment.

Some Fed officials warned in the minutes that “the risk that a further gradual easing in labor market conditions could transition to a more serious deterioration” in the economy.

Powell may also need to temper investor expectations. Futures markets on Thursday were pricing in a full percentage point worth of cuts by the end of the year. That would suggest a prodigious half-percentage point reduction at one of the three remaining meetings. (Such a big cut, ahead of the election, could further inflame a political debate about Fed independence.)