At 10am Eastern Time on August 23rd (10pm Beijing Time on August 23rd), Federal Reserve Chairman Powell will deliver a keynote speech at the Jackson Hole Annual Meeting.
Goldman Sachs stated that although investors are confident in the prospect of a Fed rate cut for the remainder of this year, Powell may still bring surprises to investors. In Goldman Sachs' view, compared to the shock Powell brought to the market two years ago, Powell is more likely to surprise the market this time.
Will Powell bring a surprise?
Since assuming the position of Federal Reserve Chairman in 2018, Powell's annual speeches at Jackson Hole have attracted market attention. Among them, the speech in 2022 left the deepest impression on the market.
At that time, inflation in the United States was at its highest level in nearly 40 years, and Powell delivered a brief and direct 8-minute speech, which really gave the market a big "shock": Powell strengthened the path of the Federal Reserve to vigorously raise interest rates to combat inflation, and stated that the determination to raise interest rates would not be shaken by market fluctuations. After this strong hawkish speech, US bond yields soared, and the S&P 500 index fell nearly 8% in a week.
But Goldman Sachs is optimistic that Powell is more likely to surprise the market at this year's Jackson Hole annual meeting.
Goldman Sachs pointed out that current US inflation has been largely controlled, while the labor market is showing signs of deterioration. Against this backdrop, Powell's speech this year will adopt a completely different tone from two years ago.
Goldman Sachs economist David Mericle said:; quot; The dovish surprises that Powell may bring may include: he may express greater concerns about the job market, or imply that maintaining the federal funds rate at a high level is inappropriate given the progress made in inflation& amp;quot;
In addition, on Wednesday of this week, the US Department of Labor suddenly significantly revised down US employment data, which will also shake the Federal Reserve's determination to maintain a hawkish stance. The US Department of Labor announced on Wednesday that the number of new jobs added in the United States from last year to the beginning of this year was much lower than previously reported. In the past 12 months ending in March this year, the preliminary downward revision of non farm employment data reached 818000 people.
&Amp; quot; This may mean that Powell will express more confidence in the inflation outlook and emphasize the downside risks in the job market; quot; Merrick believes that Powell may also reiterate that the Federal Open Market Committee is closely monitoring labor market data and preparing to support the economy if necessary
There is also a possibility of being scared
If Powell makes a dovish statement as predicted by Goldman Sachs, it is clearly positive for the stock market, as it will strengthen market confidence that the Federal Reserve will start cutting interest rates at the FOMC meeting in September, and the magnitude of the rate cuts this year may meet market expectations, or even greater.
CME's Federal Reserve Watch tool shows that investors expect a probability of over 40% for the Fed to cut interest rates by 100 basis points before the end of this year, and there may even be a possibility of a rate cut of 125 basis points.
Of course, if Powell adopts a more aggressive tone than investors expected, it may also have a downward impact on the market.
Merrick said,& quot; A possible hawkish surprise is Powell's statement that the overall financial situation in the United States is still quite loose, which may imply that while high interest rates may not be necessary, they are not an urgent issue& amp;quot;
However, in Merrick's view, Powell is still more likely to "dovish" at the Jackson Hole annual meeting, as the latest July non farm payroll report has shown weak performance and recent data also indicates that the US inflation rate is declining, approaching the Fed's long-term target of 2%.