Key Takeaways
- Federal Reserve Chair Jerome Powell will speak Friday morning at the Fed’s annual Jackson Hole Economic Policy Symposium.
- Economists expect Powell to forgo committing the U.S. central bank to a specific path for monetary policy, although he could emphasize continued inflation risk after last week’s strong economic data.
- Markets already have priced in a September interest-rate cut, potentially limiting the upside for stocks.
The highlight of this week will be the annual central bank symposium in Jackson Hole, Wyoming, which kicks off on Thursday night and runs through Saturday. And the show-stopper of that event, at least for Wall Street, is likely to be Federal Reserve Chair Jerome Powell’s speech, scheduled for 10 a.m. ET Friday.
The annual symposium comes at a critical juncture for the U.S. economy. Interest rates have been at their highest level in decades for more than a year, pushing inflation down and slowing economic activity. The unemployment rate simultaneously has risen, giving Wall Street reason to believe the Fed will begin to cut interest rates in September.
And the Fed has set the stage for interest-rate cuts. After years of focusing on inflation, policymakers have in recent months begun saying they’re equally concerned with the strength of the labor market, the second component of the Fed’s dual mandate. Powell echoed those comments after the Fed’s most recent policy meeting.
Investors will be looking to Powell’s speech on Friday for any hints about the trajectory of monetary policy, including the magnitude of the Fed’s first interest-rate cut in years and the potential pace of subsequent cuts.
What Could Jerome Powell Say at Jackson Hole
Analysts don’t expect Powell’s speech to deviate too much from his press conference after July’s Fed meeting.
“He will likely acknowledge that the Fed is prepared to ease quickly if labor markets deteriorate,” wrote Nomura analysts in a note on Friday. The health of the labor market was called into question earlier this month when data showed the unemployment rate jumped to 4.3% in July, triggering the Sahm Rule recession indicator.
“That said, we expect his remarks to be more balanced than at the July press conference–noting upside inflation risks, as well,” the analysts added.
Recession fears were quelled somewhat last week after a strong consumer spending report and a slight decrease in unemployment claims pointed to the economy’s resilience.
Subsequently, markets settled into a relative calm as expectations for Fed rate cuts moderated. Last Monday, traders were pricing in a 50% chance of the Fed cutting rates by 50 basis points next month, according to federal funds rate futures trading data. Now, markets see just a 23% chance of a cut of that magnitude.
The market’s quiet, Nomura notes, “should allow Powell to emphasize that the Fed can be patient and data-dependent, pushing back modestly on recent market pricing for an aggressive start to the easing cycle.”
Economists at Deutsche Bank wrote Monday that they expect Powell won’t “pre-commit to any particular rate-cut trajectory but [will] signal that the Fed has gained sufficient confidence that it will soon be appropriate to begin easing policy.”
How Will the Market React?
Even a dovish stance from Powell might not have much of an impact on the market.
Bank of America Securities analysts recently noted that the S&P 500 historically has had a limited reaction to Jackson Hole. Granted, there are exceptions: Stocks plummeted in 2022 after Powell struck a hawkish tone when addressing the need to restore price stability.
But this year, they forecast, isn’t likely to be exceptional. “With rate cuts already priced into the market, upside on even a dovish Jackson Hole speech is likely limited,” the analysts wrote.