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Investors today are looking to Wyoming, and it’s not to book a national park getaway before the summer comes to an end. The annual Jackson Hole symposium hosted by the Kansas City Fed is underway, with Chairman Jerome Powell set to take the stage at 10:05 AM ET. The theme of the 2023 conference is titled “Structural Shifts in the Global Economy,” which will likely explore whether the U.S. will return to a pre-pandemic low interest rate environment, or if the higher-for-longer attitude will prevail. Bulls vs. Bears: SA analysts weigh in on a hawkish or dovish Powell
Bigger picture: Nervousness going into the summit appears to be drowning out any market optimism seen following Nvidia’s blowout results. Some traders still have flashbacks of last year’s Jackson Hole hangover, when all three major averages slumped between 3%-4% after Chair Jerome Powell shot down any hopes that the Fed would telegraph a “pivot” on its aggressive policy tightening. “Restoring price stability will take some time and is likely to require a sustained period of below-trend growth and softer labor market conditions,” he said at the time, adding that the road ahead would “bring some pain to households and businesses.”
The interesting thing is that economic growth has shockingly expanded at an impressive clip since that speech, while the unemployment rate has stuck to record lows. Only a month after Powell spoke in 2022, the S&P 500 (SP500) reached its bear market low, and while stocks hit the August blues in recent weeks, the benchmark index has pretty much been on the rise since then – climbing a total of 22%. “Recession” warnings have also been supplanted by “soft landing” talk, though there is still plenty to be cautious about with Treasury yields hitting fresh highs and regional banks suggesting risks to the downside. S&P 500 flashing a correction signal not seen since early 2000s
What to watch: Back at Jackson Hole in 2020, Powell unveiled a policy of “Flexible Average Inflation Targeting,” which basically stated that the central bank would accept higher inflation to allow for a quick labor market recovery from the pandemic. As price pressures spiraled out of control in 2021, the Fed Chair doubled down on his infamous “transitory” call, before making a serious U-turn that led to an aggressive tightening cycle. A technical recession ensued in the first half of 2022, but the U.S. economy has been resilient since then, with quarterly GDP recently growing nearly a full percentage point stronger than expected, and the Atlanta Fed’s GDPNow model forecasting a whopping 5.9% expansion for Q3. Things could have also turned out differently for the economy with a different set of policies, but are more “structural shifts” in the making?
