All eyes on Fed chairman as recession fears ramp up

Federal Reserve Chairman Jerome Powell faces a political and economic gauntlet as the central bank fights to protect its independence and the U.S. economy amid escalating attacks from President TrumpDonald John TrumpTrump reversed course on flavored e-cigarette ban over fear of job losses: report Trump to award National Medal of Arts to actor Jon Voight Sondland notified Trump officials of investigation push ahead of Ukraine call: report MORE.

Washington and Wall Street will be parsing Powell’s words Friday morning as he speaks for the first time since a recent series of economic red flags spurred fears of an impending recession.

In the weeks following last month’s rate cut by the Fed — its first since 2008 — Trump has escalated his trade war with China, stock markets have turned volatile and dismal data from around the world has signaled a potential economic slowdown.

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With the threat of a recession looming in the background, Powell’s speech at the Fed’s annual summit in Jackson Hole, Wyo., will be carefully picked apart for hints about the central bank’s next move.

The last time Powell spoke publicly was a July 31 news conference following the Fed’s rate cut. He will not be taking questions from reporters after Friday’s remarks, which begin at 10 a.m.

Powell is expected to stress the Fed’s commitment to data-dependent policy without overcommitting to further rate cuts. But that path is laden with obstacles for Powell, who must balance the concerns of anxious investors, a cloudy economy, a divided policy committee at the Fed and an infuriated president.

“Those are four very distinct aspects that he has to juggle, and they don't really correlate all that well,” said Daniel Alpert, managing partner at investment firm Westwood Capital. “He's in a very, very tough spot.”

Trump has sought to discredit warnings of a potential recession, which could devastate the country and doom his 2020 reelection bid, by escalating his feud with the Fed, particularly Powell, his handpicked chairman.

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In tweets and impromptu press gaggles, the president has accused the Fed of undermining what he has called “a very strong economy” by not providing greater stimulus, even as the U.S. runs well ahead of other leading powers.

“The Economy is doing really well. The Federal Reserve can easily make it Record Setting!” Trump tweeted Thursday. “Let America win big, rather than just win!”

The Fed’s rate-setting committee may decide to cut rates at its September meeting, a move that would somewhat satisfy Trump. Financial markets are widely expecting a rate cut of at least 0.25 percentage points, though some forecasters have predicted a larger reduction.

A move toward lower rates could diffuse some of Trump’s anger and Wall Street’s anxiety, soothing concerns ahead of the election. But the shadow of Trump’s push for cheaper rates will force Powell to defend the Fed’s independence at a time of unique vulnerability.

“The president can attack the Fed six times a day and the Fed cannot breathe a word that seems to politicize it by countering the president. This is a really difficult challenge,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics.

“It is going to take an unusually forceful stand by the chairman focused more on institutional protection than on the specifics of monetary policy, a really clear explanation of why the Fed is doing what it's done.”

Powell has taken heat from Fed watchers and investors who say he has struggled to explain the bank’s rationale and outlook on the economy. His attempt in July to explain the differing reasons for the Fed’s rate cut left some experts puzzled about the bank’s approach to a cloudy economic horizon.

Powell pitched the recent rate cut as a hedge against slowing global growth, but he also insisted that the economy was likely to remain strong.

To shore up financial market concerns, Powell must navigate a lack of clear consensus among the rate-setting Federal Open Markets Committee (FOMC) members over whether another cut would be necessary or even helpful.

Several members of the FOMC have said another rate cut will do little to counter the forces weighing on the economy while squandering the Fed’s remaining ammunition against a major downturn.

“Cutting interest rates is not likely to resolve that uncertainty,” said Esther George, president of the Federal Reserve Bank of Kansas City and a voting FOMC member, in a Thursday interview with Yahoo Finance.

“I take that into account when I think about how will our policy settings help in these situations. Or are there other things we should be taking into account?” added George, who was one of two FOMC members to vote against the July rate cut.

Philadelphia Fed President Patrick Harker, who does not have a vote on the FOMC, agreed that the bank should hold off until it has a clearer idea of what lies ahead.

“I think we should stay here for a while and see how things play out,” Harker told CNBC.

The lack of unanimity among Fed policymakers and the amount of time until the FOMC’s next meeting makes it less likely that Powell will give a clear signal of the bank’s next move. 

With a raft of pending economic data set to be released in the weeks before the Fed’s next meeting, including the monthly jobs report, there’s ample time for the economic outlook to shift before the bank must make a decision.

“We expect Powell’s remarks to be consistent with additional accommodation, but we do not expect him to be overly explicit,” wrote Lewis Alexander, chief U.S. economist at Nomura, in a Thursday research note. “A lot may happen between now and the September FOMC meeting.”

Alpert added that the Fed’s message appears to be that “until we see the whites of the eyes of a recession in the actual data, we're very reticent to move because we don't have that far to go.”

Updated on Aug. 23 at 9:16 a.m.