Will another Powell shock strike this time? The highlight of the annual economic symposium held in Jackson Hole, Wyoming, the 'Jackson Hole Meeting,' is the scheduled speech by Jerome Powell, Chairman of the Federal Reserve (Fed), on the 25th (local time). This event is crucial as it offers insight into the direction of monetary policy entering the final stages of the tightening cycle amid persistent inflation and concerns about economic slowdown. Last year, Powell's unexpectedly hawkish remarks triggered a financial market shock, with the New York stock market plunging immediately afterward.
According to the Fed on the 20th, Chairman Powell will attend the Jackson Hole Meeting held over three days from the 24th to the 26th in Wyoming under the theme 'Structural Shifts in the Global Economy.' This event is an annual economic policy symposium attended by central bank governors, senior officials, and leading economists from around the world, including Powell himself. Powell is scheduled to deliver his economic outlook speech on the second day, the 25th, at 10:05 a.m. Eastern Time.
The impact on global financial markets will be inevitable depending on the tone of Powell's remarks. In 2021, he made the misjudgment that "inflation is temporary," which damaged his credibility over time, and last year, he surprised the market by stating, "We will continue to raise interest rates even if it causes pain to businesses and households." Bloomberg News reported that "since the Fed raised the U.S. benchmark interest rate last month to 5.25-5.5%, the highest since 2001, this speech is expected to provide clues about future rate outlooks," highlighting the market's attention.
At this event, Powell is expected to reaffirm the existing stance that high interest rates may persist for a longer period while reminding the market of ongoing inflation concerns. Anna Wong, an economist at Bloomberg Economics, predicted in a report that "Powell will adopt a more balanced tone," suggesting that he will "hint at the end of the tightening cycle while emphasizing the need to maintain rates at a high level for an extended period." Stephanie Kelton, a professor at Stony Brook University, anticipated that "as usual, he will mention that additional rate hikes could continue based on data."
The investment-focused economic magazine Barron's forecasted that "while mentioning that inflation and employment indicators are moving in the right direction, the Fed may warn that it will maintain restrictive-level interest rates for some time and raise them further if necessary." The July FOMC minutes released last week also contained concerns from Fed officials about inflation and left room for additional rate hikes. This serves as a warning that the fight against inflation is not over yet. Barron's also noted that since key indicators will be released before the September FOMC, Powell's speech is unlikely to provide specific hints about the September rate decision.
There are also views that the impact of Powell's speech on the market will be limited. Unlike last year, the rate hike cycle is nearing its end, and both the stock and bond markets have already priced in Powell's message that leaves the possibility of further hikes open ahead of the Jackson Hole speech. The market still expects a rate hold in September. According to the CME FedWatch tool, the current interest rate futures market strongly reflects a scenario of no further rate hikes this year. The remaining FOMC meetings this year are scheduled for September, November, and December.
Dennis DeBusschere, CEO and Chief Market Strategist at 22V Research, said in an investor memo, "Don't expect Powell to bring down the hammer like last year," adding, "He will not deviate from his data-dependent stance or change his tone."
On the day, Bloomberg News reported citing data compiled by Bloomberg Intelligence that since the 2000s, Fed chair speeches have generally played a role in boosting stocks. Based on the S&P 500 index, the market has risen an average of 0.4% in the week following a Fed chair's remarks. However, last year's Jackson Hole Forum was an exception when Powell issued a strong hawkish warning, with the market falling 3.2% the following week.
Stephanie Lang, Chief Investment Officer (CIO) at HomeRichBerg, pointed out, "Investors are betting that inflation is under control and the Fed can declare victory, but that has not yet materialized," adding, "This is the biggest risk factor for the stock market." This week also includes earnings announcements from Nvidia, considered a beneficiary of the artificial intelligence (AI) rally.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
