All eyes are focussed on Jackson Hole this week, in particular Jerome Powell, as investors and economists alike look for further guidance as to when we may see the first interest rate cut in the US. That cut now looks imminent, with September the most likely timing, following his first speech at the Economic Symposium. Here, the Chairman of the US Federal Reserve (the Fed) remarked that the jobs market is cooling.

Whilst inflation remains above the 2% target, at 2.9% year on year to July, it slowly but surely continues to move in the right direction. This is providing further confidence to the rate setting committee that they may now be in a position to move to less restrictive monetary conditions. The minutes of the previous meeting, also released this week, suggested that the majority of policymakers believe that reducing interest rates would be appropriate this quarter.

From an economic perspective the US economy appears to remain in a state of expansion according to the latest survey data from S&P. As has now been the case for some time however, the economy appears two speed. Whilst the service sector remains in expansion mode the manufacturing sector continues to contract.

Whilst as interest rate cut in September appears a cert, whether this is a 0.25% or 0.50% move we will have to see. Powell stated that “the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.” They will be hoping to strike an appropriate balance between economic growth, the level of inflation and pressures within the labour market. Equity markets reacted positively to the speech, with key indices rising. Bond markets also responded positively, with yields falling as the market priced in rate cuts.

In the UK the economic outlook also looks bright, with survey data from S&P suggesting expansion. Here it would appear we are not seeing a two speed economy, however, with expansion in both the services and manufacturing sectors, something which the US has not quite been able to manage. Will this prove a hinderance to how quickly the Bank of England is able to cut interest rates here, or is inflation at 2.2% enough to justify more to be seen?

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