Jackson Hole annual meeting signals global nerves, the Federal Reserve's interest rate cut decision is caught in a complex chess game.

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 exchange ideas. However, at the Jackson Hole Symposium that concluded last Saturday, the atmosphere was at times tense, making it clear that the road ahead is challenging. Last Friday, Federal Reserve Chairman Jerome Powell signaled in his keynote speech that there will be a rate cut at the next policy meeting in September. But there is a clear division among policymakers on whether this decision is correct. Powell himself also admitted that the economy has brought a "complex situation" to Federal Reserve officials. Economic Dilemma: A Difficult Choice Between Inflation and Employment Policymakers are facing a dual challenge: inflation rates are still above the 2% target and are continuing to rise, while signs of weakness are emerging in the labor market. This unsettling reality is pushing policies in opposite directions, and the high uncertainty surrounding the evolution of these two major factors in the coming months is making the situation even more difficult. Chicago Federal Reserve President Charles Evans, speaking in an interview during the conference, said: "We are faced with some conflicting signals, and the current environment is indeed challenging. I often say that the most difficult task for the Federal Reserve is to get the timing of policy right during a transition." The conference also highlighted the political pressure facing the Federal Reserve. As Donald Trump attempts to exert influence on this important federal institution that he has not yet reformed, this pressure may intensify in the coming months. During his speech last Friday morning, Trump threatened to fire Federal Reserve Board member Lisa Cook if she did not resign due to recent mortgage fraud allegations. This is the latest move by the Trump administration to pressure the Federal Reserve into cutting rates. Compared to recent years, security at the event was noticeably heightened, further adding to the tense atmosphere of the conference. Federal Reserve police, U.S. Park Police, and officers from the Teton County Sheriff's Office (some dressed in military camouflage and armed) were stationed throughout the event. Early Friday morning, Trump supporter and frequent Federal Reserve visitor James Fishback confronted Cook in the hotel lobby, loudly questioning her on mortgage loan dispute-related issues, before being escorted out by officers. Rate Path: Expectations for Rate Cut and Internal Disagreements Coexisting Powell's speech at this event may be his last address at Jackson Hole during his tenure, where he detailed the ambiguous signals being sent by the economy. He stated that the impact of tariffs on prices has now become evident, but there are still questions about whether this impact will reignite inflation in a more lasting way. He described the current state of the labor market as "unusual" with "softening demand and reduced supply." Despite these uncertainties, Powell has left the door open for a rate cut at the meeting on September 16th to 17th, but the signal is not as clear as it was at last year's meeting. Last year, with worsening labor market conditions but fading inflation concerns, many policymakers supported an immediate rate cut; this year, that consensus is not as strong. Recent data shows that inflation is stuck above the Federal Reserve's 2% target, with some indicators suggesting that price pressures may spread to products and services not directly impacted by tariffs. Meanwhile, although summer hiring has significantly slowed down, other labor market indicators, such as the low unemployment rate, are showing a more stable trend. Given the uncertain economic outlook, disagreements among policymakers over future actions are becoming more pronounced. At the meeting in July where the Federal Reserve did not cut rates, two members dissented; if they decide to cut rates in September, there may be others dissenting as well. As Trump nominates new officials to fill vacancies at the Federal Reserve, and Powell's term as chairman is set to end in May next year, policy disagreements may further widen in the coming months. The president has nominated his top economic adviser Stephen Moore to fill a vacancy on the Federal Reserve Board that ends in January next year. Under Pressure: Upholding the Independence of the Federal Reserve The divisions among Federal Reserve officials come as the central bank faces close scrutiny from the White House. While there was not much direct discussion of this topic on the official meeting agenda, it permeated through conversations during coffee breaks, meals, and in the hallways. Karen Dynan, a Harvard University economics professor and regular attendee at the Jackson Hole Symposium, said it is not surprising that central bank officials are reluctant to discuss political matters, but she believes this conference has set a model for how to discuss macroeconomic issues. "What's particularly significant this year is that we've seen a series of papers written by prominent experts based on solid economic analysis," Dynan said. "These are issues that cannot be solved based on intuition or discussions within small circles they truly require this kind of professional insight." New Policy Framework: Returning to Fundamental Objectives The new policy framework announced by Powell in his speech received relatively little attention. This document will guide policymakers in achieving the inflation and employment objectives, and it is the result of months of review of the old framework that was implemented in 2020. The new strategy removes some language that focused more on the challenges of "sustained low inflation" before the pandemic. Caroline Pufygral, an associate professor at the University of Chicago Harris School of Public Policy, said this is a "return to basics," allowing the Federal Reserve to focus more clearly on its dual mandate of "achieving full employment" and "price stability." Pufygral pointed out: "Powell emphasized in his speech that his core job is inflation and the unemployment rate, and this can only be achieved with the Federal Reserve maintaining its independence. I think people agree with this." Global Impact: The Ripple Effects of Federal Reserve Decisions This agreement was evident last Friday morning Powell received a standing ovation from global economists and policymakers, not for the first time this year. For them, the independence of the Federal Reserve is not just a matter of principle, but also a practical necessity: because decisions made in Washington will inevitably have far-reaching effects beyond the United States. After Powell's speech, the euro rose 1% against the dollar, adding downside risks to inflation in the eurozone where inflation is expected to dip to 1.6% next year. Maurice Obstfeld, Senior Fellow at the Peterson Institute for International Economics and former chief economist at the International Monetary Fund, when discussing the eurozone and other economies, said: "If a Federal Reserve rate cut reflects a slowdown in the U.S. economy, given the size of the U.S. economy, it could mean their economy will slow down too."