The annual Jackson Hole Conference will be held next Thursday to Saturday (August 22-24) at the Jackson Lake Inn in Grand Teton National Park, Wyoming, USA.
At a time when economic recession concerns are looming around the world and global central banks are at a policy turning point, this grand event has attracted much attention. And Fed Chairman Powell's speech will undoubtedly become the focus of market attention.
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 of Wyoming every August and September to discuss the most pressing global economic and monetary policy issues.
We will set the tone for the September interest rate cut
According to the updated schedule by the Federal Reserve on Thursday, Powell will deliver a keynote speech at the Jackson Hole Annual Meeting on August 23rd at 10am Eastern Time (10pm Beijing Time). This year's conference continued the tradition of the Federal Reserve Chairman delivering a keynote speech during the three-day central bank annual meeting.
This meeting provides Powell with an opportunity to provide the latest assessment of the US economic trajectory and monetary policy outlook between the Federal Reserve's July and September policy-making meetings. It is widely expected that Powell will provide monetary policy clues during his opening speech at the Jackson Hole Conference.
In response to high inflation, the Federal Reserve began raising interest rates in March 2022, pushing the benchmark rate from near zero to the current range of 5.25% -5.50%. Since July 2023, interest rates have remained at this level.
Given that inflation in the United States has cooled down in the past few months and the labor market has slowed down, financial markets generally expect the Federal Reserve to initiate a rate cut cycle at its meeting on September 17-18.
But there are still differences in the market regarding the magnitude of interest rate cuts. Although most economists expect the Federal Reserve to cut interest rates by 25 basis points in September, some industry insiders also predict that there may be a larger 50 basis point rate cut. Some even call for the Federal Reserve to cut interest rates early.
Given the mixed economic data recently released by the United States, people are repeatedly jumping between "the US economy will fall into recession" and "the US economy will not fall into recession". This is also the main reason why the market is divided on the prospect of interest rate cuts.
Earlier this month, the US non farm payroll report for July unexpectedly exploded. The report shows a sharp deterioration in the job market, with the unemployment rate reaching its highest level in nearly three years. In addition, multiple economic data such as the July Consumer Price Index (CPI) and Producer Price Index (PPI) in the United States were lower than expected, indicating a slowdown in US inflation and paving the way for the Federal Reserve to cut interest rates.
However, the US retail sales and first-time jobless claims data released on Thursday were better than expected, easing concerns about an economic recession and bringing the prospect of a "soft landing" back into view. This seems to ease the urgency for the Federal Reserve to make significant interest rate cuts.
Economists say Powell will lay the groundwork for a September rate cut at next week's Jackson Hole Conference, and the most anticipated actual rate cut will be determined by August employment data to be released a week later.
Krishna Guha, Vice Chairman of Evercore ISI, stated in a note to clients that Powell will set the tone for future monetary easing policies and tends to be "proactive" rather than "passive" in cutting interest rates. The specific details can only be determined after the August employment data is released on September 6th.
The current priority for the Federal Reserve is employment data, not inflation data, and the upcoming employment data will determine how the Fed actively promotes interest rate cuts, "said Guha.
Will the market experience a major shock?
For investors, what kind of reaction Powell's speech at the Jackson Hole annual meeting will bring to the market is their biggest concern. It is worth noting that the US stock market often experiences major shocks during Powell's speeches.
For example, in August 2022, Powell delivered a hawkish speech at Jackson Hole, stating the need to quell inflation through some "pain" and reiterating a tough stance on inflation. This hawkish speech directly hit the US stock market, with the Dow Jones Industrial Average falling more than 1000 points, a drop of 3%, the S&P 500 index falling 3.4%, and the Nasdaq falling nearly 4%.
Over the past month, the volatility of the US stock market has intensified. Last Monday, accompanied by a global market sell-off, the US stock market experienced its worst day in over two years. However, since the beginning of this year, the S&P 500 index has still risen by nearly 17%.