From August 21st to 23rd, the Teton Mountains of Jackson Hole, Wyoming, once again hosted the annual meeting of the world’s central banks. Themed “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy,” the symposium, while ostensibly focused on academic economics, became a global focus due to the predicament of Federal Reserve Chairman Powell—who was facing relentless pressure from former US President Trump, while central bank governors from around the world sought to forge a united front in defense of central bank independence.

Central bank independence: a battle to protect the global economy

Trump’s attacks on Powell have been ongoing for months. Not only has he publicly criticized Powell for refusing to cut interest rates, he has also bluntly stated that when Powell’s term as chairman ends next year, he will be replaced with someone “more compliant.” This statement marks a stark turning point for developed economies. Since the Federal Reserve established its tradition of independent monetary policymaking under the leadership of Paul Volcker in the 1970s, the global consensus has been that central banks should independently determine their policies to achieve their long-term economic goals. Research has shown this to be the most effective way to curb inflation.

Trump’s actions are now causing concern among global policymakers. European Central Bank President Christine Lagarde, Bank of England Governor Andrew Bailey, and others will publicly support Powell at the annual meeting, warning against the risks of elected officials pressuring monetary policymakers. “Independence is in the DNA of central banks,” said Joachim Nagel, President of the German Bundesbank. “It would be wonderful if this were recognized everywhere.” These concerns are not unfounded. A European Central Bank report shows that between 2018 and 2020, the de facto independence of nearly half of the central banks in economies representing 75% of global GDP declined.

Populist politicians in countries like Turkey and Brazil have long challenged the independent central bank model. Former Bank for International Settlements General Manager Augustin Carstens warned, “Historically, poor monetary policy management has had devastating consequences for inflation and the financial system, even pushing countries to the brink of collapse.” Powell himself has privately demonstrated his unwavering commitment to defending independence. Sources familiar with the matter revealed that at the April IMF meeting, he spoke passionately in defense of central bank independence, earning applause from his peers. Indian Federal Reserve Chairman Sanjay Malhotra, recalling the event, expressed his admiration for his resolve, while Christine Lagarde called him “the epitome of a courageous central bank governor.” The Jackson Hole symposium may be another stage for global central bankers to publicly voice their support.

Policy suspense: interest rate cut expectations and Powell’s “closing speech”

Beyond political pressure, the market is also focused on whether Powell will signal a September rate cut at the annual meeting. While US inflation is currently lower than its peak two years ago, it remains approximately 1 percentage point above the Fed’s 2% target. The unemployment rate remains at a historic low of 4.2%, striking a delicate balance between the Fed’s dual mandate of price stability and maximum employment. Investors are already placing aggressive bets on rate cuts. Interest rate futures traders are pricing in an 85% probability of a 25 basis point cut in September, with expectations for another 25 basis point cut before the end of the year.

However, Powell and his team have maintained the benchmark interest rate at a relatively tight level this year. While weak July employment data has fueled expectations of easing, inflation concerns remain. This has led to market speculation that he may insist on his stance of “needing more data before resuming easing” in his speech on Friday. Notably, this is Powell’s eighth and final Jackson Hole keynote address as Fed Chair. UBS economists note that this platform holds special significance for him: “He may offer soft guidance, hinting at future rate cuts, but he is more likely to use it to highlight his performance in office. After all, it will be difficult to find such an influential platform to write history again.”

Market volatility warning: the “pain signal” of historical data

If Powell’s past speeches are any guide, investors should prepare for volatility. Reuters calculations show that in the month following his past seven Jackson Hole speeches, the 10-year Treasury yield rose an average of 21 basis points, the dollar rose an average of 1.4%, and the S&P 500 fell an average of nearly 2%. The most dramatic case occurred in 2022: In his speech titled “Monetary Policy and Price Stability,” Powell cited Volcker and warned that anti-inflationary policies would bring “pain.” In the following month, the S&P 500 plummeted 12%, the dollar rose 5%, and the 10-year Treasury yield soared 75 basis points.

Bond yields also rose by at least 20 basis points following his speeches in 2018, 2021, and 2023. In 2023, he even signaled he would maintain high interest rates for longer. The current market environment is even more uncertain. In the first half of this year, the US dollar plummeted by over 10% against a basket of developed economy currencies due to Trump’s attacks and chaotic tariff policies, marking its worst first-half performance since 1973. While a weaker dollar is positive for emerging markets—relieving pressure on local currency stability and creating room for policy easing—Trump’s continued pressure could undermine public confidence in monetary policy, a risk already evident in some emerging economies.

Conclusion

Behind the breathtaking mountain scenery of Jackson Hole lies the struggle between global central banks and political pressure, a game between policy direction and market expectations. Powell’s speech will not only influence the Federal Reserve’s September decision but also serve as a crucial statement defending central bank independence. Regardless of its ultimate outcome, this “central bank extravaganza” is destined to leave a profound mark at a crucial juncture in the global economic transformation.