At the Fed’s Big Conference, Investors Will Grasp for Hints About Rate Path

The most anticipated economic event of the summer is set to happen on Friday, when Jerome H. Powell, the Federal Reserve chair, provides an update on the economic outlook that could detail how the central bank is thinking about inflation and the path ahead for interest rates.

Mr. Powell’s speech at the Federal Reserve Bank of Kansas City’s annual conference near Jackson, Wyo., is always closely watched. But it is getting special scrutiny this year as investors grasp for any hint at what might come next for the Fed, which has been raising rates rapidly in its campaign to tamp down the fastest rate of inflation in 40 years. Markets are trying to guess when the central bank, which raised rates by an unusually quick three-quarters of a percentage point at each of its last two meetings, will slow down.

Inflation has shown some early signs of moderating, which could point toward a less aggressive Fed policy path. But prices are still increasing at more than three times the pace the Fed aims for, creating a pressing challenge for consumers who are struggling to afford day-to-day necessities like rent and food as wages fail to keep up.

As officials weigh both glimmers of hope and a still-worrying pace of inflation, they are attempting to achieve a delicate balancing act. The Fed is trying to avoid restricting the economy so much that it plunges the United States into an unnecessary recession, while restraining it enough to bring price increases fully and firmly back under control.

Mr. Powell has historically used his remarks at the conference, colloquially called Jackson Hole for the area where it is held, to detail big ideas. He laid out a new framework for monetary policy at the gathering in 2020 and in 2021 provided reasons — which have since failed to pan out — for why inflation might fade.

Inflation F.A.Q.

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Inflation F.A.Q.

What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.

Inflation F.A.Q.

What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.

Inflation F.A.Q.

Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.

Inflation F.A.Q.

How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.

Inflation F.A.Q.

Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.

Fed watchers are hoping that this year’s meeting will both dissect what has gone wrong with inflation and how the Fed is thinking about its next steps as it tries to tame it. Officials have already lifted the federal funds rate from near-zero in March to a range of 2.25 to 2.5 percent in July, making for the fastest series of policy moves since the 1980s.

Continued rapid rate increases would help to cool down the housing market and broader economy, slow consumer spending and business expansions, and eventually weigh on wages and prices. But quick Fed rate adjustments also carry a risk: They have historically caused recessions as more expensive borrowing has slammed the brakes on business activity. The Fed’s war on inflation four decades ago — the last time price increases were this rapid — led to painfully high unemployment that cost families their livelihoods.

The central bank has been trying to slow the economy enough to prevent inflation from becoming more permanent without raising rates so starkly that the resulting shock inflicts undue pain on the labor market.

But striking the balance is a challenge because the pandemic-altered economy is behaving in unpredictable ways, a major topic of this year’s Jackson Hole conference. Supply chain bottlenecks and shortages have limited the supply of couches, cars and computer screens, while consumers have been spending resolutely, helped in part by fiscal stimulus and a strong labor market.

The combination has been fueling inflation, but it is not clear if today’s out-of-whack economy represents a shift to a new normal or a blip that the Fed can hope will resolve at least partly on its own. The stakes are high. If the world has plunged into a new inflationary era, the Fed is likely to have to inflict more pain to wrestle inflation lower than it would if a return to old business patterns helped to slow price increases.

Understand Inflation and How It Affects You

  • Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.
  • Managing Your Finances: With interest rates rising, now is a good time to pay down credit card balances and bolster emergency savings.
  • Cost of Living: As food prices rise, eating is becoming increasingly expensive. We took a close look at five New Yorkers’ food and drink habits to see where the effects are most felt.
  • A New Playbook: As brands grapple with inflation, they are taking a new approach: being upfront about price increases, hoping that transparency will keep customers loyal.

Mr. Powell is likely to talk about today’s unusual dynamics and what they mean for policy during his remarks, which the Fed has said will focus on the economic outlook. Analysts are divided on how clear of a signal he will give about upcoming moves.

“Powell may more clearly acknowledge the potential for ‘some pain’ as a result of the Fed’s efforts to restore price stability,” economists at Nomura, the largest Japanese brokerage, wrote in a research note previewing the event. Yet it may still be too far away from the Fed’s Sept. 20 to 21 meeting for Mr. Powell to clearly state what the central bank is likely to do at that gathering, they thought.

Economists at Goldman Sachs expect Mr. Powell to suggest that the Fed plans to stop raising rates so quickly. That could entail moving from its recent three-quarters-of-a-percentage-point rate increases to half-percentage-point moves in coming months.

But the more durable message could come from how Mr. Powell and the Fed are thinking about the future. And for that, America will have to wait until he delivers his speech at 10 a.m. Eastern time on Friday.

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