For Wall Street, in addition to the unwavering eight annual Federal Reserve interest rate meetings over the past few decades, perhaps the most eye-catching event at the level of central bank macro monetary policy is the annual Jackson Hole Global Central Bank Annual Meeting hosted by the Kansas Fed.
The Jackson Hole Conference is one of the oldest central bank meetings in the world and is also known as the 'Davos Forum of Central Bank Governors'. Since 1978, the Kansas Federal Reserve has been responsible for hosting this annual economic policy conference. Central bank officials, Nobel laureates, and top scholars from around the world gather in this small town located in Wyoming, USA every August and September to discuss the most pressing global economic and monetary policy issues.
This year's Jackson Hole Global Central Bank Annual Meeting is scheduled to be held from August 22nd to 24th Eastern Time. The complete schedule will be released on Thursday, August 22nd at 8pm New York time. According to past arrangements, Thursday (August 22) is usually the opening dinner of the global central bank annual meeting, while a series of formal seminars and roundtable discussions often only officially begin on Friday. Among them, there is the confirmed time for Federal Reserve Chairman Powell, who will take the stage on Friday Beijing time
What are the highlights of Jackson Hole Annual Meeting?
This year, the focus of this central bank seminar is once again on responding to the post pandemic economic recovery and the challenges posed by high interest rates and geopolitical tensions, with the theme of "Re evaluating the effectiveness and transmission mechanism of monetary policy".
Undoubtedly, at a time when economic recession concerns are looming around the world and central banks around the world are at a policy turning point, this grand event is highly anticipated.
Among the series of central bank officials who appeared, the most eye-catching "protagonist" is obviously none other than Federal Reserve Chairman Powell. Federal Reserve Chairman Powell will deliver a keynote speech on August 23rd at 10am Eastern Time (Friday 22:00 Beijing Time), which will be broadcast live but without a Q&A session.
It is worth mentioning that although the theme of this year's conference is "Re evaluating the Effectiveness and Transmission Mechanism of Monetary Policy", Powell recently revealed that "it (this speech) does not need to be related to the theme of the conference" when talking about the content of his speech at Jackson Hole. It is reported that Powell may attempt to deliver a speech focusing on the current economic outlook and provide some higher-level key points.
Looking back at history, in August 2022, Powell delivered a concise speech of about nine minutes at Jackson Hole, which was one of the shortest speeches given by a Federal Reserve chairman at Jackson Hole in recent years, but also the most lethal one. At that time, Powell extinguished investors' hopes for the Fed to quickly end its interest rate hike action, and the S&P 500 index fell 3.4% in one day.
The market volatility triggered by Powell's speech at last year's annual meeting was relatively subdued. Powell stated at the time that the inflation rate was still too high, and officials were open to raising interest rates again if necessary. He also hinted that interest rates may remain high in the foreseeable future, as recent signs suggest that the economic slowdown may not be as severe as officials had anticipated.
At present, it can be foreseen that as US inflation continues to cool down, Powell's speech content this year will inevitably be different from the speeches in the past two years' tightening cycles'.
And how he will signal the pace of the Federal Reserve's upcoming interest rate cuts, as well as how he views the current US job market and inflation situation, will undoubtedly receive special attention.
In terms of other attending central bank "bigwigs", the Bank of England has announced that Governor Bailey will give a lunch speech at 3:00 am Eastern Time on Friday (3:00 am Beijing Time on Saturday); The Chief Economist of the European Central Bank, Philip Lane, will participate in Saturday's meeting review panel discussion, where he may share his views on economic topics with central bank governors from emerging market countries and leaders of international organizations.
Of course, it is regrettable that the Governor of the Bank of Japan, Kazuo Ueda, has been asked to attend the Japanese Diet meeting scheduled for August 23 to discuss the recent interest rate hike decision, so he should not be able to attend this year's Jackson Hole Central Bank Annual Meeting in person. However, considering that Kazuo Ueda will still speak with Powell one after another within a day, how their speeches will affect yen arbitrage trading may still receive high market attention.
Will the global market experience another wave of turbulence?
According to data from Citigroup, based on the cost of in the money put and call options, option traders currently expect the S&P 500 index to fluctuate by more than 1% on Friday. It is not difficult to foresee that as the focus of global financial markets gradually shifts from whether the Federal Reserve will cut interest rates to the extent of the rate cut, any subtle details in Powell's wording could become a new catalyst for the global market situation in the final stage of this week.
Currently, some industry insiders are concerned that there may be some discrepancies between Powell's actual speech content and market expectations. Eric Beiley, Executive Managing Director of Steward Partners Global Advisory Wealth Management, said, "If traders hear Powell clearly stating that a rate cut is imminent, the stock market will react positively, but if they don't hear the desired information, it will trigger a large-scale sell-off
Especially for fund managers who just flooded into large tech stocks last week, driving the S&P 500 index further higher, this will be a challenge. The S&P 500 index finally ended its four week continuous decline last week, with a single week surge of 3.9%, setting its best weekly performance since November last year. With reduced volatility, investors have shaken off recent concerns about the US economy heading towards a recession. According to EPFR Global data cited by Bank of America, investors invested $5.5 billion in the US stock market in the week ending last Wednesday.
The market firmly believes that a rate cut will come soon, "Beiley pointed out," but if Powell does not strengthen this, it will be a huge surprise.
At present, the interest rate futures market has fully anticipated that the Federal Reserve will start cutting interest rates at its September meeting, with differences only existing on whether to cut interest rates by 25 basis points or 50 basis points. The Federal Reserve Observation Tool of Zhishang Institute shows that interest rate market traders currently expect a 71.5% probability of the Fed cutting interest rates by 25 basis points and a 28.5% probability of a 50 basis point rate cut.
But some industry insiders speculate that Powell was still likely to remain tight lipped about the timing of the interest rate cut when he spoke on Friday. According to his habitual characteristics, he is also likely to adopt a cautious and ambiguous approach to reveal how much interest rates may decrease after the Federal Reserve completes easing. If this happens, the market rebound may be in jeopardy.
Goldman Sachs pointed out that the market may receive signals of "interest rate cut confidence" and "data dependence" this Friday. It is expected that Powell's information and off exchange interviews will be similar to what has been heard in the past few weeks, that is, the Federal Reserve is now close to cutting interest rates, but the degree of easing will depend on upcoming data.
Former "third in command" of the Federal Reserve and former New York Fed President Bill Dudley pointed out over the weekend that the Fed chairman may imply that there is no longer a reason to implement a tight monetary policy. However, Dudley does not believe that Powell will disclose the magnitude of the first interest rate cut, especially considering that the employment report will be released on September 6th and the next policy meeting of the Federal Reserve will be on September 18th.
Tom Hainlin, investment strategist at Bank of America Wealth Management, said that based on past Jackson Hole speeches, it is unlikely that we will receive a very standard answer from Powell. We want to know exactly what the Federal Reserve's interest rate path is - whether it cuts rates every meeting or still depends on employment and inflation data. But he may not be so clear. Traders are more likely to get this information at the Federal Reserve's September meeting
Homrich Berg's Chief Investment Officer Stephanie Lang pointed out that Powell's tone is crucial. If he surprises the market and performs poorly, the stock market will react negatively.
From a historical perspective, speeches by Federal Reserve presidents at Jackson Hole usually do not have a significant catalytic effect on the stock market, unless it is before a critical shift in monetary policy - such as now. Industry compiled data shows that since 2000, the S&P 500 index has risen an average of 0.4% in the week following the conference.