Stormclouds abound as economists gather in Jackson Hole

Top economists gathering in the Rockies this year face seismic questions not just about near-term policy, but about the role of the world's most important central bank in a democratic society.The big picture: At the Kansas City Federal Reserve's annual economic symposium, there is often a gap between the formal topic of discussion — this year, that's "Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy"— and what people are really talking about in the hallways and during coffee breaks.This year, hard questions abound in Jackson Hole, Wyoming: Short-term tactical issues, the medium-term framework for monetary policy, and how independent from politics the Fed can and should be, with a president determined to bring it more squarely under his thumb.It's also a moment to take stock of the legacy of the guy who has led the Fed for the last 7 1/2 years.Driving the news: Jerome Powell, in what is almost certainly his last Jackson Hole appearance as Fed chair, will speak at 8am local time Friday (10am ET) on the "Economic Outlook and Framework Review."Investors will be scrutinizing the speech for answers to the near-term question of whether the Fed will cut interest rates next month, as markets are betting.We'll be particularly listening for his analysis of the labor market — whether he interprets the weak job growth from May and June, revealed in a nasty report three weeks ago, as a sign of tumbling labor demand worthy of a Fed response.Yes, but: Powell may prove more noncommittal on a September rate cut than markets (or the Trump administration) would like, given the possibility that August data due out between now and the next policy meeting could easily show new tightness in the labor market and elevated inflation.Against that backdrop, he could be reluctant to say anything that comes across as locking in to a September rate cut, let alone a series of them.The second half of Powell's speech topic is the Fed's every-five-years review of its monetary policy framework.Flashback: He is likely to describe a shift away from aspects of the 2020 framework, which called for using interest rate policy to react to shortfalls in employment.That approach created an asymmetry in which the Fed was on hair-trigger alert to cut rates when the job market softened, but no corresponding readiness to raise rates when the job market got too tight, as in 2021.The 2020 framework may have contributed to the Fed being slow to the onset of inflation four years ago, so it will be interesting to see how Powell grapples with changes.Reality check: With a new chair all but certain next spring and other turnover in Fed leadership in train, it's not clear how much weight to put on this abstract framework as a guide to how the central bank's policy will evolve in the coming years.This Jackson Hole gathering is taking place after a remarkable few weeks in America's fraught 200-plus-year history of tension between political leadership and its central bank.It could shake the foundations of how U.S. economic policy works in ways that resound across the world.Catch up quick: President Trump has assailed the Fed for failing to deliver the interest rate cuts he desires, and his administration has used an unlikely set of cudgels to pressure Fed officials, seemingly to build a case for firing them for cause.This week, it was accusing former President Biden-appointed Fed governor Lisa Cook of mortgage fraud. Before that, it was accusing Powell of perfidy tied to the Fed's $2.5 billion renovation project.Trump has nominated his top White House economist, Stephen Miran, to a vacant seat on the seven-member Board of Governors and is fast-tracking his Senate confirmation. Whenever the next vacancy occurs, there will be a Trump-appointed majority on the board.Between the lines: The question for the global central banking community is whether new appointees will follow the long tradition of making data-driven decisions based on economic conditions, or will take direction more explicitly from the White House.The Fed has made plenty of mistakes in recent decades. Yet they've been mistakes rooted in flawed analysis — rather than setting monetary policy based on what's convenient for the current president.In conversations with economists and central bankers in recent weeks, there has been intense focus on gaming out what the Trump-era monetary regime will actually look like.Will it be willing to raise interest rates if inflation proves persistent, against Trump's wishes? Will it manage its rates policy and balance sheet to try to make it easier for the government to manage its debt, rather than to keep the economy on an even keel?The bottom line: Even as immediate policy questions hang over this year's Jackson Hole symposium, the bigger questions of whether the Fed will maintain its status as a technocratic, independent institution will be very much in the air.Go deeper: A primer on the Jackson Hole conference

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