The signals from the Jackson Hole annual meeting are stirring global nerves, and the Federal Reserve's decision on interest rate cuts is caught in a complex chess game

According to the Zhitong Finance APP, the annual meeting held by the Federal Reserve in the Rocky Mountains is usually an opportunity for central bank officials and professional economists to relax and communicate. However, at the Jackson Hole seminar that concluded last Saturday, the atmosphere was at times tense, clearly highlighting the difficulties ahead. Last Friday, Federal Reserve Chairman Jerome Powell signaled in his keynote speech that an interest rate cut could come as soon as the next policy meeting in September. However, there are significant internal disagreements among policymakers regarding whether this decision is correct. Powell himself acknowledged that the economy presents a "complex situation" for Federal Reserve officials.

Economic Dilemma: The Dilemma of Inflation and Employment

Policymakers are facing dual challenges: inflation rates remain above the 2% target and continue to rise, while signs of weakness are emerging in the labor market. This unsettling reality pushes policy in opposite directions, and the evolution of these two factors in the coming months is highly uncertain, further complicating the situation.

Chicago Federal Reserve President Austan Goolsbee stated in an interview during the meeting, "We are facing some contradictory signals, and the current environment is indeed tricky. I often say that the most difficult job for the Federal Reserve is to time policy correctly during transformative moments."

The meeting also highlighted the political pressure the Federal Reserve is under. As Donald Trump attempts to exert influence on this important federal agency, which has yet to be reformed by him, this pressure may intensify in the coming months.

During Powell's speech last Friday morning, Trump stated that he would fire Federal Reserve Governor Lisa Cook if she did not resign over recent mortgage fraud allegations. This is the latest move by the Trump administration to pressure the Federal Reserve from multiple angles, as he has persistently pushed for interest rate cuts.

Compared to previous years, security at this event was noticeably heightened, further intensifying the tense atmosphere of the meeting. Federal Reserve police, U.S. Park Police, and officers from the Teton County Sheriff's Office (some in military camouflage and armed) were present throughout.

On Friday morning, Trump supporter and frequent Federal Reserve visitor James Fishback confronted Cook in the hotel lobby, loudly questioning her about the mortgage controversy, before being escorted away by officers.

Interest Rate Path: Expectations for Rate Cuts Amid Internal Disagreements

Powell's speech may be his last at Jackson Hole during his tenure, where he elaborated on the ambiguous signals from the economy.

He noted that the impact of tariffs on prices has now become evident, but whether this impact will reignite inflation in a more lasting way remains uncertain. He described the current state of the labor market as "abnormal," with "demand declining and supply decreasing."

Despite these uncertainties, Powell still left the door open for a rate cut at the meeting on September 16-17, but the signals were not as clear as last year's meeting. Last year, as the labor market deteriorated but inflation concerns eased, many policymakers supported a quick rate cut; this year, that consensus is far less strong.

Recent data shows that inflation is stagnating above the Federal Reserve's 2% target, with some indicators suggesting that price pressures may spread to products and services not directly affected by tariffs. Meanwhile, despite a significant slowdown in summer hiring, other labor market indicators, such as low unemployment rates, show a more stable trend Due to the unclear economic outlook, the divergence among policymakers regarding subsequent actions is increasingly intensifying. At the Federal Reserve's meeting in late July, two governors voted against not lowering interest rates; if a rate cut is decided in September, there may be others voting against it.

As Trump nominates new officials to fill vacancies at the Federal Reserve, and with Chairman Powell's term ending in May next year, the policy divergence may further widen in the coming months. The President has nominated Stephen Moore, the chairman of his Council of Economic Advisers, to fill a vacancy on the Federal Reserve Board that will expire in January next year.

Under Pressure: Upholding the Independence of the Federal Reserve

The divergence among Federal Reserve officials coincides with the central bank facing close scrutiny from the White House. Although there is not much direct discussion on the official meeting agenda, this topic permeates coffee chats, meals, and exchanges during breaks in meetings.

Karen Dynan, an economics professor at Harvard University and a regular at the Jackson Hole annual meeting, stated that it is not surprising that central bank officials are reluctant to engage in political topics, but she believes this meeting has set a precedent for how to discuss macroeconomic issues.

"What is particularly significant this year is that we have seen a series of papers written by prominent experts based on solid economic analysis," Dynan said. "These issues cannot be resolved merely by intuition or discussions within small circles — indeed, this kind of professional insight is needed."

New Policy Framework: Returning to Fundamental Goals

The new policy framework announced by Powell during his speech received relatively low attention. This document will guide policymakers in achieving inflation and employment targets and is the result of months of review of the old framework implemented in 2020. The new strategy removes some expressions that were more focused on the pre-pandemic challenge of "persistently low inflation."

Caroline Pflueger, an associate professor at the Harris School of Public Policy at the University of Chicago, stated that this is a "return to fundamentals," allowing the Federal Reserve to focus more clearly on its dual mandate of "maximum employment" and "price stability."

Pflueger pointed out: "Powell emphasized in his speech that the core of his work is inflation and unemployment, which can only be achieved if the Federal Reserve maintains its independence. I think people agree with this."

Global Impact: The Ripple Effect of Federal Reserve Decisions

This consensus was evident last Friday morning — Powell received a standing ovation from economists and policymakers around the world, which is not the first time this year.

For them, the independence of the Federal Reserve is not only a matter of principle but also a practical necessity: because decisions made in Washington will inevitably have impacts far beyond the United States.

After Powell's speech, the euro rose 1% against the dollar, adding downward risks to inflation in the eurozone — where inflation is expected to drop to 1.6% next year.

Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics and former chief economist at the International Monetary Fund, remarked regarding the eurozone and other economies: "If the Federal Reserve's rate cut reflects a slowdown in the U.S. economy, considering the size of the U.S. economy, this could mean that their economies will also slow down."