Market Awaits Powell's Speech
What happened?
The annual Jackson Hole Central Bank symposium kicks off today with the theme “Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy.” Powell speaks Friday in what is widely billed as his final Jackson Hole address as Fed chair; he’s expected to give monetary guidance for the remainder of the year which is keenly anticipated by markets. The Fed tone into the event has turned mixed-to-cautious. Today, Kansas City Fed President Jeff Schmid said there is “no urgency” to cut with inflation still nearer 3% than 2%, arguing policy remains only modestly restrictive—and should stay that way until there’s “clear and convincing” evidence inflation is returning to target.
Why does this matter?
Pivotal Moment for Markets: Financial markets have been insistent on a dovish Fed ahead, with odds for a September rate cut hovering above 80%, and 5 cuts priced in until Dec' 26, despite many signs for an inflation rebound under way.
Independence at Stake: Powell's speech is an opportunity for the Chair to push back against the admin's pressure to cut rates aggressively now.
What's the counterpoint?
Whatever stance Jerome Powell chooses tomorrow, markets may be right that a dovish Fed lies ahead either way as US economic data could weaken over the coming months. Today's initial jobless claims showed a step-up in long-term unemployment, and Walmart missed earnings due to tariff charges.
finformant view
While there are some signs of a weakening US economy, markets may be ahead of themselves expecting Powell to be dovish tomorrow. It seems more likely that he takes his chances to get into history books by pushing back against the pressure applied on him.