US Jackson Hole symposium: Powell’s speech to move markets

In a quiet data week, the market’s focus remains on the Jackson Hole Symposium for any policy tweaks from Fed’s Chair, Jerome Powell. The Federal Reserve Bank of Kansas City hosts dozens of central bankers, policymakers, academics, and economists from around the world at its annual economic policy symposium in Jackson Hole, Wyoming.

Higher rates, for longer?

The main question investors will be wanting to know is does the Fed see the need for even higher rates for even longer. Current expectations from short-term interest rate markets are that the terminal rate for the Fed will be marginally higher than the current rate of 5.375% and that there will be a rate cut around May next year. See below for the details.

Wall Street Journal’s Timiraos had sent speculation going that the Fed was communicating a more hawkish message through his tweet that higher neutral rates looked likely. However, late in the European Session on Monday Timiraos said that he believes Powell is unlikely to talk about higher rates at Jackson Hole. This kept yields contained and raises a more neutral expectation for Powell’s speech.

What to watch and the market reaction to expect

Powell speaks on Friday at 15:05 UK time and this is what to look for. If Powell sends a message that rates are sufficiently restrictive and no more rate hikes are needed, and also, that rate cuts could be expected next year, then expect a possibility of USD falls, US yields to fall, stocks to gain, and precious metals to gain.

However, if Powell sends a message that more rate hikes are needed and that no rate cuts will be coming in 2024, then expect the possibility of USD, USDJPY, and US yields to gain, and gold to continue to fall.

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