Powell's Speech at Jackson Hole: What to Watch

On Friday,Which futures company has the cheapest handling fee Fed Chair Jerome Powell will speak at the annual Jackson Hole Symposium, widely seen as the next crucial step in the Fed's fight against inflation. Markets expect Powell to pave the way for an upcoming rate cut and reassure investors that policymakers can curb inflation without severely slowing down the economy.

Powell's comments will be closely analyzed, especially given weaker-than-expected job reports and further easing inflation. The market is looking for any hints about the economic outlook. Most economists anticipate a 25-basis point rate cut at the Fed's next meeting onSeptember 17-18, but there is somedisagreement about the size of the cut. While most expect a 25-basis point cut, some institutions, including Citi and JPMorgan, predict the Fed might cut by 50basis points.

Key Expectations from Powell’s Speech:

1. Limited Policy Guidance: 

Powell's speech may provide only limited policy guidance, but he will undoubtedly address the recent market turmoil. Goldman Sachs economist David Mericle recently stated, “We expect Powell to express more confidence in the inflation outlook and emphasize downside risks to the labor market more than he did at the July FOMC press conference.” Goldman expects the Fed to cut rates by 25 basis points at each of the next three meetings, ultimately reducing the federal funds rate by about 200 basis points.   

2. Potential Disappointment for Stock and Bond Markets: 

The Fed’s rate cut timeline may disappoint stock and bond investors. Unlike Congressional testimony, Powell’s speech at Jackson Hole is free from political attacks or unrelated topics, often seen as an additional FOMC meeting. Powell might signal a strong likelihood of a 25-basis point rate cut in September due to softening inflation data and the recent significant revision of employment growth by the Bureau of Labor Statistics.   

3. Will Powell Go Against Market Pricing? 

Bank of America predicts Powell’s speech at Jackson Hole is unlikely to significantly impact the dollar. Analysts suggest that even if Powell’s speech leans dovish, it’s unlikely to be more dovish than market expectations. Rate cuts have already been priced in, so the upside for a dovish Jackson Hole speech might be limited.   

4. Outline of a Medium-Term Strategy: 

Morgan Stanley expects Powell to outline the Fed's medium-term strategy, particularly ongoing anti-inflation measures that allow the Fed to focus on sustaining economic expansion while achieving its 2% inflation target. Powell might point out that even after rate cuts, policy will remain tight. A key takeaway could be the distinction between the level and trend of economic activity. The labor market has cooled, but economic activity is not particularly weak.   

5. Market Reaction to Fed Rate Cuts: 

The market broadly expects the Fed to cut rates by 25 basis points in September, November, and December, with further cuts anticipated next year. This speech will be crucial in shaping market expectations for future rate cuts. Goldman expects Powell to deliver a more dovish message than at the July FOMC press conference, especially given the recent weak CPI report and employment growth data.   

6. Market History and Expectations: 

Past Jackson Hole meetings have often significantly impacted the markets. Last year, Powell’s commitment to doing whatever it takes to bring inflation back to the 2% target and his warning that higher rates could lead to pain and higher unemployment caused a market crash. This year, market expectations for Powell's speech are more moderate, with an assumption that he will keep the option for aggressive easing open.

In his Friday speech, Powell might emphasize the trend of economic slowdown while noting that the U.S. economy is still expanding. Despite expectations for rate cuts, the market appears to have more rational pricing for the Fed’s policy direction. Analysts predict that even a dovish speech will see limited market reaction as rate cuts have already been widely anticipated.

Overall, Powell's speech will offer crucial insights into the future direction of Fed policy. While he is expected to signal a dovish stance, these expectations have already been priced in, so the reaction might not be too dramatic. Investors will closely watch his words for any new insights that could impact future policies.

(This content is for sharing market news and commentary and does not constitute investment advice.)

Statement: The content of this article does not represent the views of FTI website. The content is for reference only and does not constitute investment suggestions. Investment is risky, so you should be careful in your choice! If it involves content, copyright and other issues, please contact us and we will make adjustments at the first time!