Jerome Powell of the Jackson Hole: Expect rate-cutting rollback, bond yield comments

Later this week, monetary policymakers will gather at the Federal Reserve’s Kansas City annual economic symposium in Jackson Hole, Wyoming, to discuss “structural shifts in the global economy.” It is usually the highlight of the Fed Chairman’s speech.

Jerome Powell He is scheduled to speak Friday at 10:05 a.m. ET. Given the large gap between the July FOMC meeting and the September meeting — eight weeks instead of six to seven — investors will be eager to see if Powell’s views on the economy have changed since then. The last meeting of the Federal Reserve.

US economist Aditya Bhav at Bank of America and strategists Mark Cabana and Alex Cohen predict that “the tone could be less balanced in Jackson Hole given the strong data flow since the FOMC meeting in July.” They noted second-quarter gross domestic product, which rose 2.4%, well above consensus, and July retail sales, excluding automobiles, which rose 1.0%, also above expectations.

“While the Fed would prefer not to shorten the business cycle, policymakers may have become increasingly concerned about accelerating inflation, driven by strong aggregate demand,” said Bank of America strategists. “Therefore, we expect Powell to push back – tacitly or explicitly – against the degree of interest rate cuts that markets are priced in for next year.”

Recall that last year, Powell openly stated that the Fed is focusing on inflation and price stability over its full employment mandate and warned that interest rate cuts are not coming soon.

The recent jump in bond yields is likely to be mentioned, though it may not be addressed directly, said Evercore ISI vice president Krishna Guha, head of the company’s global policy and central bank strategy team. “But our hunch is that the Fed will try to avoid adding fuel to the fire on the hawkish trend,” he wrote in a note to clients.

Overall, he expects the Fed to be prudent and “avoid piling up yields, but don’t try to tell the bond market it’s wrong either.”

Lexi Cantor of Goldman Sachs’ economic research team does not expect strong signals from the Fed on monetary policy. With July PCE inflation and the non-farm payrolls report released after the Jackson Hole meeting, “the Fed will likely wait to be informed of this new data before changing its current position,” she wrote in a note to clients.

South African analyst Gary Gambino predicts that Powell “will likely reaffirm his intention to keep interest rates high for an extended period to make sure that inflation does not flare up again.”

As such, he does not expect a major impact on the markets as the central bank has already delivered this message well. “Treasury and equity markets appear to have already shifted to reflect this policy, as they did in 2022 prior to the conference,” he wrote.

South African analyst Damir Tokic expects the Fed to hint at more rate hikes this year to prevent a surge in inflation. An early halt could increase energy and food prices, especially if the US dollar weakens, and accelerate wage growth — both factors that could reignite inflation.

“The Fed may need to overextend and deliver a deeper demand shock to restore price stability,” Tokic wrote recently.