Topline
The most powerful man in the U.S. economy will deliver arguably his most important speech of the year Friday when Federal Reserve Chairman Jerome Powell delivers his address at the Fed’s annual symposium in Jackson Hole, Wyoming, and here’s what observers are expecting—and hoping—he’ll say.
Jerome Powell, right, at 2023’s Jackson Hole.
Key Facts
Powell will take the stage at 10 a.m. EDT to address a group of central bankers from around the globe at the event hosted by the Fed’s Kansas City branch for the last four decades.
The speech is broadly expected to shed light on the central bank’s game plan ahead of its expected interest rate cuts, with the conclave titled “Reassessing the Effectiveness and Transmission of Monetary Policy” to reflect the pivot point.
Minutes released Wednesday from the rate-setting Federal Open Markets Committee’s July meeting revealed a “vast majority” of U.S. policymakers expect to cut rates beginning at the group’s September summit, the first time since March 2020, a move anticipated by financial markets since the Fed last hiked rates 13 months ago.
The real juice from Powell’s speech will be any hints he gives as to how quickly and by how much he expects to cut rates: Traders will closely look for any insight into whether Powell expects to lower rates by 25 basis points or 50 basis points next month.
If it’s 50 points, it could indicate the Fed is taking acute action to prevent the economy from falling flat, considering the only times over the last 20 years the Fed cut rates by that amount at a single meeting came during the 2007-08 financial crisis and March 2020, at the beginning of the COVID-19 pandemic.
They are also looking for hints about where the federal funds rate will wind up when the dust settles, a major question mark considering the present range of 5.25% to 5.5% are the highest rates in the U.S. since 2001.
Why The Timing Of Powell’s Comments Matter
The speech comes at a delicate time for the U.S. economy, as recession fears briefly spiked earlier this month when the unemployment rate rose to a 3-year high, with further questions raised about the strength of the labor market Wednesday when the Bureau of Labor Statistics said the federal government overestimated the number of jobs created for the 12-month period ending in March by 818,000. It also comes in the waning months of a presidential election, where former President Trump has made hammering the incumbents—first President Biden, and now the Democratic candidate, Vice President Harris—about the economy’s turmoil (especially inflation) in the past four years.
Crucial Quote
“A data dependent Fed who is relying on faulty data is dangerously close to making a policy mistake that will turn a slowing economy into a recession,” explained Laffer Tengler Investments CEO Nancy Tengler in emailed comments Wednesday, adding the “important” Jackson Hole speech was now “more important” than it was prior to the downward job revisions.
How Do Stocks Perform During Jackson Hole?
Powell’s Aug. 2022 address famously sent chills throughout financial markets as he warned about the need for lengthy, restrictive monetary policy to slow inflation. The S&P 500 fell 3.4% on the day of his 2022 speech at Jackson Hole, 6.5% in the week after, and 12% in the month after the appearance. Despite that chilling memory, the symposium has actually typically boosted stocks in recent years, with the S&P gaining a median of 0.8% in the week following the event dating back to 2010, according to Bank of America strategists.
Key Background
A lot has happened since Powell last addressed the public July 31 following the most recent FOMC meeting. The weak Aug. 2 jobs report, as well as news of the Bank of Japan taking a divergent path from other notable central banks and actually pursuing rare rate hikes, caused markets to go into a tizzy, with the S&P sinking as much as 7% from July 31 to Aug. 5 as investors braced for a potential recession, emboldening critics that the Fed acted too slowly to stick a “soft landing” in which inflation abated and the U.S. avoided a downturn typically associated with such a scenario. But the last two-and-a-half weeks brought a steady stream of encouraging economic news, including weekly unemployment claims, monthly retail sales and monthly inflation releases which all topped economist estimates. That calmed nerves about an imminent recession and caused equities to bounce back, with the S&P actually up in August through Thursday.