On Friday, Federal Reserve Chairman Jerome Powell will speak at the annual Jackson Hole Symposium in Wyoming.

The long-awaited event will provide clues about the Fed’s upcoming policy.

To help market participants, Powell should be clear about when the Fed will stop raising rates, said Gary Wagner, editor at TheGoldForecast.com.

Wagner spoke with David Lin, Anchor and Producer at Kitco News.

“The main thing [market participants] what I want to understand is at what point will the Federal Reserve stop raising interest rates … and more importantly, at what point will they begin to ease or, in other words, reduce the Fed Funds rate,” Wagner said.

The Fed raised interest rates by 225 basis points between January and July. Inflation in July was 8.5%, up from 9.1% in June.

Before the Jackson Hole speech in 2021, Wagner had predicted higher inflation until 2022, when the Fed had yet to raise interest rates.

“If you listen to some of President Powell’s statements over the last couple of months, he has acknowledged that they should have acted sooner,” he said. “I really believe that if they had started using their toolbox earlier, we wouldn’t be seeing inflation at 8.5% today.”

Fed forecasting errors

The Fed failed to accurately forecast inflation and therefore failed at the policy level, Wagner said.

“At Jackson Hole’s Last Banquet… [The Fed] it was still under the assumption that inflation would be transitory, that it would work itself out of the system naturally,” he said. “If they had started with small rate hikes of 25 basis points a year earlier, they could have had a series of them that wouldn’t have shaken the economy as quickly and as hard as it has.”

At the same time, Wagner acknowledged that unforeseen events beyond the Fed’s control had also driven higher prices. He singled out the war in Ukraine as a “wild card” that boosted oil prices “like a second-stage booster in a rocket.” He also said that food and energy prices, in general, are unlikely to be affected by Fed policy.

Labor Markets

The unemployment rate in July was 3.5%, a low rate despite high inflation and supply chain shortages.

However, Wagner predicted that once the labor market reaches a new equilibrium, there will be “one job for every two people looking for one,” though he didn’t see that happening anytime soon.

Other labor market indicators also look favorable, with wages and salaries up 5.3 percent from last year.

Some economists worry about rising wages in times of inflation, arguing that higher wages can lead to higher inflation as businesses raise prices to offset higher costs.

Wagner said that while wages were not a “critical” factor in causing inflation, they were “a very important and big piece of the puzzle.”

“We got to where we are because of a lot of things going on,” he said. “And the fact is that higher wages certainly added to the inflationary pressures that we’re seeing now.”

To hear Wagner’s gold price prediction, watch the video above.

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