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Fed Chair Powell’s annual remarks at Jackson Hole have become must-watch events for traders, often leading to big market moves. Goldman Sachs provides a quick recap of the past six years and how they have impacted the front end of the bond market (the dollar generally follows the front end of yields).
Key points:
- Powell’s tone has shifted from dovish to hawkish and back again.
- Market reactions vary, but moves of 2 to 4 basis points are common.
- Recent years have seen more extreme surprises.
Markets are pricing in something dovish on Friday at 10 a.m. ET. Fed funds futures are pricing in a 71% chance of 25 basis points in September and a 29% chance of 50 basis points. The market is pricing in 97 basis points of easing in the remaining three meetings this year and 195 basis points next year.
It’s a good summary and a reminder that last year’s speech was a strong hint that the rate hike cycle was over.
H/T @Mike Zaccardi