Your Needs Our Focus
Financial Bulletin
Tonight, the global market is waiting for Powell with bated breath!
The US economic data has given the green light to cut interest rates, and the minutes of the July meeting released on Wednesday showed that "the overwhelming majority" of FOMC members agreed to cut interest rates in September. When everything is ready, financial markets hold their breath and wait for the annual global central bank meeting, expecting Powell to set the tone for the interest rate cut in September in his speech at the meeting.
From August 22nd to 24th, central bank governors and economists from all over the world gathered at the annual meeting of global central banks in Jackson Hole. Federal Reserve Chairman Powell will deliver a keynote speech at 10:00 am EST on August 23rd (22:00 Beijing time on Friday). The speech will be broadcast live but there will be no question-and-answer session afterwards.
So, what will Powell say this time? What statements can be regarded as a signal to cut interest rates? How should the market prepare?
Most people on Wall Street think that Powell may not give too many clear explanations. With Powell's personality, he is likely to keep his mouth shut about the timing of interest rate cuts, let alone disclose how much interest rates may fall.
Nevertheless, Powell still needs to make a brief review of the current economic situation and give some limited but important guidance on the economic prospects. Investors will sniff out the Fed's attitude towards the labor market and look for clues to cut interest rates in September.
Powell, who has always kept his mouth shut, how much wind will blow this time?
Before the heavy words, some analysts warned that Powell was unlikely to announce any "amazing news".
Tom Hainlin, national investment strategist at bank of America wealth management company, said:
Looking back on Jackson Hole's speeches in the past, we are unlikely to get very instructive remarks from Powell.
"They still rely on data," said Lou Crandall, a former Federal Reserve official and chief economist of Wrightson-ICAP. He predicted that Powell "will not be vague about the direction, but the specific rate cut speed and time will depend on the economic data released before the interest rate decision in September.
Before the arrival of the next interest rate decision of the Federal Reserve on September 18th, there is also a non-farm employment report (released on September 6th) for FOMC members' reference.
Crandall said that the Fed will cut interest rates in the next quarter, but they will not provide any guidance on this issue now.
Jack Janasiewicz, chief portfolio strategist of Natixis Investment Managers Solutions, wrote in the report that the key for investors is Powell's tone, which is expected to be biased towards "doves".
In short, the inflation rate continues to move towards the target of 2%, which seems to be higher than expected. Coupled with signs of a weak labor market, people will feel that there is no need to maintain a hawkish stance.
Analysts such as Mark Cabana of Bank of America Merrill Lynch pointed out in previous research reports that the core of Powell's speech was "maintaining the stability of the labor market". Bank of America Merrill Lynch believes that if Powell is more determined to prevent the labor market from weakening, it will be regarded as an important policy signal.
If 2022 (the theme of Powell's speech) is "determination" and 2023 is about "data dependence", then 2024 may be "maintaining labor market stability".
Goldman Sachs holds a similar view, and its analyst David Mericle said in a recent report:
In view of the previously released data, we expect Powell to express stronger confidence in the inflation outlook than at the monetary policy press conference in July, and to put more emphasis on the downside risks in the labor market.
Goldman Sachs expects the Fed to cut interest rates by 25 basis points three times in a row from September, and believes that the market is too ahead of schedule to cut interest rates by 50 basis points at the next meeting after the employment data in July is weaker than expected.
The higher the expectation, the harder the fall?
The timing of this annual meeting of Jackson Hole is quite special. On the one hand, the Federal Reserve is at the crossroads of interest rate cuts, and on the other hand, the global market has just experienced a plunge in Big bounce.
The market's expectation of the Fed's interest rate cut fluctuates extremely in the ups and downs of the market. At present, it is expected to cut interest rates in September, but it is still uncertain about the rate cut, and it is urgent to give further guidance with clear signals. The next employment report will be released the day before the silent period before the Fed meeting in September, so this meeting at the end of August is the only opportunity for the market and Powell to "communicate positively" before making a decision in September.
According to the analysis, whether the rebound last week can continue depends on whether Powell can give a clear signal about the interest rate cut in September. Steve Sosnick, chief strategist at Interactive Brokers, said:
Before the Jackson Hole meeting, I called for caution, especially because the more you rebound ahead of time, the more vulnerable (the stock market) may be.
Eric Beiley, managing director of wealth management at consulting firm Steward Partners Global Advisory, said:
If traders hear that a rate cut is coming, the stock market will react positively ... If we don't hear what we want, it will trigger a large-scale sell-off.
Komal Sr-Kumar, director of Sri-Kumar Global Strategies, disagreed, saying:
Powell has always been inclined to support the stock market, and he hinted again and again. Although the interest rate has not dropped, this time, his statement will still support the stock market.
Risk warning and exemption clause
The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.