All eyes are on Jackson Hole, where Federal Reserve Chair Jerome Powell is due to speak later this morning. Investors will scrutinize Powell's 10 a.m. ET address at the mountain retreat for signals about whether a rate cut, the first of this year, could come in September. The Fed chair has faced intense pressure from the Trump administration to slash borrowing costs. Many investors expect the Fed to cut rates next month, but they have grown less confident in that prediction in recent days, after solid economic data and signs of quickening inflation. Powell will probably also use the speech to say the Fed is retreating from a five-year-old rate-setting approach that focused on the risks brought on by near-zero interest rates and low inflation. And two Fed officials offer competing assessments of the labor market that highlight looming divisions over how the central bank should approach trade-offs when considering whether to cut rates next month. 

Federal Reserve officials are preparing to quietly retreat from a signature policy innovation unveiled five years ago.

In 2020, officials revamped their approach to setting rates, focusing on the risks brought on by near-zero interest rates and low prices. Today, officials are preparing to scrap that approach, now viewed as no longer relevant when facing the opposite problem of high and more volatile inflation.

Fed Chair Jerome Powell is expected to lay out these changes at the Kansas City Fed’s economic symposium in Jackson Hole, Wyo., on Friday in what has become the central banking world’s most closely watched annual address.

The speech, his final one at the conference as Fed chair, offers him a high-profile opportunity to explain the conclusions of a monthslong review that abandons key innovations while rebutting charges that those changes contributed to the worst inflation surge in four decades.

Manufacturers in the Philadelphia reported a surprise return to contraction of activity this month, reflecting increased jitters among firms about the impact of trade policy. The Federal Reserve Bank of Philadelphia said Thursday that its business-activity index sank to minus 0.3 in August from a positive figure of 15.9 points in July, below consensus expectations of 7.0 from economists polled by The Wall Street Journal. (Dow Jones Newswires)

10 a.m.: Federal Reserve Chair Jerome Powell speaks at the 2025 Jackson Hole Economic Policy Symposium, Moran, Wyoming

8:30 a.m.: Chicago Fed National Activity Index (CFNAI)
10 a.m.: New Residential Sales
10:30 a.m.: Texas Manufacturing Outlook Survey
7 p.m.: U.S. President Donald Trump hosts South Korean President Lee Jae-myung at the White House

U.S. Federal Reserve Chair Jerome Powell will walk a fine line at a speech on Friday as he balances signs of an economic slowdown against concerns about rising inflation, said Roman Gaiser, head of fixed income for EMEA at Columbia Threadneedle Investments.

Powell is expected to open the door to a possible 25-basis-point interest-rate cut in September when he speaks at the Fed's annual Jackson Hole Symposium.

Gaiser expects his comments will be cautious and that he will avoid precommiting to a rate reduction as soon as next month.

Powell is in a "tough spot" as the U.S. faces an unclear economic outlook, he said. President Trump has also exerted pressure on the Fed to cut interest rates in recent months.

"I think he will try to walk that fine line, that balancing act of not looking like he is giving in to pressure from President Trump," he said.

Investors see a high chance of a rate cut next month, although this isn't certain, particularly given recent higher-than-expected U.S. producer price data.

U.S. money markets currently price a nearly 80% probability of a September rate reduction, LSEG data show.

Columbia Threadneedle expects a 25-basis-point rate cut in September, based on signs of the U.S. economy slowing. However, the fund manager is "not quite sure" about the need for a follow-up rate cut this year, Gaiser said.

By contrast, investors are more convinced, with U.S. money markets fully pricing in two 25 basis-point rate reductions by year-end, according to LSEG data.

The recent steepening of the U.S. government-bond yield curve--where the gap between yields on short- and long-dated Treasurys widens--"is a sign of caution that investors show towards the U.S.," he said.

Investors' wariness towards U.S. assets has helped to boost eurozone assets, as well as an improved economic outlook in Europe. —Emese Bartha

• Canadian Prime Minister Mark Carney had a “productive” call with President Trump about trade and a new economic and security pact between the two countries, Carney’s office said Thursday.
• Wages in the eurozone rose at a slightly faster pace during the three months through June as unemployment remained at record lows, likely keeping the European Central Bank cautious as it deliberates a possible resumption of interest-rate cuts.
• Germany’s economic output shrank by more than initially estimated in the second quarter, with industry faring worse than expected as U.S. tariffs hurt exports.
• A torrent of bad economic news is pushing the German chancellor, Friedrich Merz, to focus on the home front this autumn.
• U.K. consumers felt a little better about their finances this month as the Bank of England lowered borrowing costs, though sentiment remains weak amid wider economic turmoil.
• Japan’s consumer inflation cooled in July, but remained well above the central bank’s target of 2%, reinforcing expectations of a coming interest-rate increase.

WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ’s global team of reporters and editors. This newsletter was compiled by markets reporter Vicky Ge Huang in New York. Send your tips, suggestions and feedback to vicky.huang@wsj.com.