Core Viewpoint - Deutsche Bank's Chief Economist Matthew Luzetti indicates that the new monetary policy framework adopted in 2020 is not the primary cause of the Federal Reserve's delayed response and inflation overshoot, but it has objectively contributed to these outcomes [1] Group 1 - Luzetti expects Fed Chair Jerome Powell to emphasize the revision of the Fed's long-term goal statement to align more closely with reality during his key speech on Friday [1] - Potential revisions may include the removal of the 2020 reform content and the re-establishment of the priority for preventive policies [1] - The upcoming speech coincides with a policy turning point, and Luzetti anticipates Powell will also adjust his statements regarding the labor market [1]

Core Viewpoint - Federal Reserve Chairman Jerome Powell is expected to emphasize the independence of the Fed during his upcoming speech, amidst significant political pressure and scrutiny from the Trump administration [1][2][3] Political and Policy Context - Powell's speech is anticipated to address the Fed's independence, especially given the political challenges he faces, including ongoing criticism from President Trump [2][3] - The theme of the speech, "Economic Outlook and Framework Assessment," suggests Powell will discuss macroeconomic conditions and long-term policy goals, which are evaluated every five years [3][4] - Market expectations indicate that Powell may pave the way for a rate cut in September, as his past speeches have often signaled major policy shifts [3][4] Market Reactions and Expectations - Analysts predict that Powell will not explicitly signal a September rate cut but will indicate potential support for such a move [4] - The Kansas City Fed President has stated that more data is needed before supporting a rate cut, reflecting a cautious stance among some Fed members [4][5] - The labor market's condition and the impact of Trump's tariff policies on inflation will be critical points in Powell's address [4][5] Inflation and Employment Dynamics - Recent labor statistics show weak job growth, yet many policymakers still describe the labor market as "robust," indicating a lack of urgency for rate cuts [5] - Concerns about inflation are prevalent among Fed members, with some expressing skepticism about the necessity of a September rate cut, which could provoke political backlash [5][6] - Powell is likely to maintain a cautious approach and avoid pre-committing to a September rate cut, focusing instead on a robust long-term policy framework [5][6] Framework Adjustments - The Fed's 2020 adoption of a "flexible average inflation targeting" framework may be revised, as it has been linked to the current inflation surge [5][6] - Economists expect Powell to advocate for a return to a more preventive policy stance, reflecting the realities of the current economic environment [6]