Later this week, monetary policymakers will gather at the the Kansas City Fed’s annual economic symposium at Jackson Hole, Wyoming, to discuss “Structural Shifts in the Global Economy.” The highlight is usually the Federal Reserve chair’s speech.
Jerome Powell is set to speak on Friday at 10:05 AM ET. Given the large gap between July’s FOMC meeting and September’s — eight weeks instead of the usual six to seven — investors will be eager to hear if Powell’s views on the economy have shifted since the Fed’s last meeting.
Bank of America’s U.S. economist Aditya Bhave and strategists Mark Cabana and Alex Cohen expect the “tone could be less balanced at Jackson Hole given the robust data flow since the July FOMC meeting.” They pointed to Q2 GDP that drove up 2.4%, well above consensus, and July retail sales, excluding autos, that climbed 1.0%, also above expectations.
“While the Fed would prefer not to short-circuit the business cycle, policymakers are probably becoming increasingly concerned about a re-acceleration in inflation, driven by strong aggregate demand,” the BofA strategists said. “Therefore, we expect Powell to push back— implicitly or explicitly— against the degree of rate cuts that markets are pricing for next year.”
Recall that last year, Powell had bluntly stated that the Fed is focusing on inflation and price stability over its full-employment mandate and warned that rate cuts were not coming soon.
The recent jump in bond yields is likely to be mentioned, though it might not be tackled head on, said Evercore ISI Vice Chairman Krishna Guha, who is head of the firm’s Global Policy and Central Bank Strategy Team. “But our hunch is the Fed will try to avoid adding fuel to the fire in the hawkish direction,” he wrote in a note to clients.
Overall, he expects the Fed to be cautious “and avoid piling on the rise in yields, but not try to tell the bond market it is wrong either.”
Lexi Cantor from Goldman Sachs’s Economic Research team isn’t expecting strong signals from the Fed on monetary policy. With July PCE inflation and the nonfarm payrolls report coming out after the Jackson Hole meeting, “the Fed will likely wait to be informed by these new data before changing their current posture,” she wrote in a note to clients.
SA Analyst Gary Gambino anticipates that Powell “will probably restate its intent to keep interest rates high for an extended period to make sure inflation does not flare up again.”
As such, he doesn’t foresee much effect on markets as the central bank has already communicated that message well. “Treasury and equity markets already appear to have turned to reflect this policy, as they did in 2022 ahead of the conference,” he wrote.
SA Analyst Damir Tokic expects the Fed to hint at further interest hikes this year to prevent a flare-up in inflation. A premature pause could boost energy and food prices, especially if the U.S. dollar weakens, and accelerate wage growth — both factors that could re-ignite inflation.
“The Fed might need to overtighten and cause a deeper demand shock to restore price stability,” Tokic wrote recently.