Since 1981, Federal Reserve bankers, business leaders, prominent academics, and government officials have gathered each August for a three-day symposium in Jackson Hole, Wyoming, to discuss critical issues facing the global economy and financial markets—while also getting in some fishing and horseback riding.
Federal Reserve Chairman Jerome Powell’s annual speech is always closely watched. In recent years, as the Fed has grappled with inflation, the spotlight on the symposium has become brighter. Powell’s remarks at Jackson Hole have become a sort of inter-meeting guide for investors, a preview of future Fed policy that can move markets in a big way.
The main event will take place on Friday at 10 a.m. ET this year. Investors and business leaders will be looking to Powell for confirmation that a rate cut will come in September for the first time since March 2020.
But as always, Powell’s tone, choice of words, and longer-term outlook will be closely scrutinized, with questions surrounding how the Fed chairman will balance his dual mandate — which requires him to seek both maximum employment and price stability.
In a note on Monday, a team of economists and strategists at Bank of America, led by equity strategist Osung Kwan, argued that Powell would come out with a “dovish tone,” indicating that the Fed “will shift its focus to preventing unwanted weakness in the labor market” after July’s weak jobs report.
Cowan and his team believe the central bank will cut rates twice this year, in September and again in December. However, they argue that Jackson Hole is unlikely to deliver the drama it has in recent years. Powell may choose to largely repeat his message from the July FOMC meeting, indicating that the Fed is “close” or even “very close” to cutting rates, but offering no guidance for a significant rate cut.
Even if Powell comes out more dovish than expected, investors may be disappointed by the lack of market impact. “With the rate cut already priced into the market, the upside even from a dovish Jackson Hole speech is likely to be limited as the market awaits NVDA earnings next week for a better indication on the state of economic growth,” the Bank of America team said, noting that “the Fed is unlikely to ‘outperform’ the market, but as long as growth is doing well, stocks could withstand a less dovish Fed.”
There are certainly reasons for Powell to take a wait-and-see approach as well. Markets have been rattled by mixed economic data in recent weeks. On Aug. 2, the Bureau of Labor Statistics reported that the unemployment rate rose to 4.3% in July, triggering a key recession indicator called the Contribution Rule and prompting calls for aggressive interest rate cuts by the Fed. But last week, a relatively strong retail sales report and a second straight decline in initial weekly jobless claims prompted many economists and Wall Street leaders to return to the “soft landing” camp, leaving Fed Chairman Powell in a strange position at Jackson Hole: He has good reasons to cut the federal funds rate, but he also has good reasons to keep it there.
Economic data is difficult to analyze, which means the content of Powell’s speech has become less predictable accordingly.
“Powell may reiterate the message he delivered at his July press conference that the FOMC is watching labor market data carefully and is very well positioned to support the economy if needed,” David Mericle, chief economist at Goldman Sachs, wrote in a note on Monday.
Merkel also said he thinks a 25 basis point rate cut will come in September, rather than a larger 50 basis point cut. That’s in line with bond market expectations, too. Traders are currently pricing in a 77.5% chance of a 25 basis point rate cut and a 22.5% chance of a 50 basis point rate cut, according to CME Group data. Federal Reserve Monitoring Tool.
Veteran market watcher Ed Yardeni of Yardeni Research also expects Powell to cut rates by 25 basis points at Jackson Hole. However, he argued in a note on Sunday that the Fed chairman will also emphasize that the economy is doing well, even without a rate cut, and that inflation is fading, meaning that the longer-term outlook for further rate cuts could be in question.
“It will also likely push (Chairman Powell) to backtrack on his expectations for cuts in November and December,” wrote Yardeni, who believes we are living in the “roaring 20s” driven by technological innovation and rising productivity, stressing that Powell will remain “data-dependent.”
The job market may contain a curve ball.
The Bureau of Labor Statistics will release estimates on Wednesday for a major revision to previously released payroll data from April 2023 to March 2024. The report is expected to show that the U.S. economy created far fewer jobs than previously thought. Quincy Krosby, chief global strategist at LPL Financial, said the data could change Chairman Powell’s comments on Friday, making him more dovish.
“Markets, having recently seen growth concerns lead to concerns that the Fed is behind the curve, will be watching the release of the benchmark review on Wednesday to see if the initial market reaction is in fact correct,” she wrote in comments emailed to CNBC. luck“If the report reveals significantly fewer jobs created than initially reported in the monthly payrolls, the Fed chairman’s concerns (about the weakness in the labor market) could be amplified in his comments.”
Crosby, like others, noted that Powell has made clear that he is watching the labor market carefully for signs of a significant slowdown, and that he is “prepared to intervene if necessary.”
Citi economists, led by chief U.S. economist Andrew Hollenhorst, expect the Fed to be more dovish. They have argued for months that the labor market is starting to weaken and a hard landing is coming. The latest weak jobs report, they say, was evidence of at least a slight acceleration in that trend.
“While he has been more upbeat about the prospects for a soft landing, he will be increasingly concerned about protecting against downside labor market risks,” Hollenhorst wrote on Monday. “We see dovish risks as Powell speaks Friday in Jackson Hole with the potential for more signals toward a potentially faster pace of cuts.”