Tonight, the global market holds its breath, waiting for Powell!

US economic data has given the green light for rate cuts, the minutes of the July meeting released on Wednesday showed that the "vast majority" of FOMC members agreed to cut rates in September. With everything in place, the financial markets are holding their breath, waiting for the annual global central bank summit, anticipating Powell to set the tone for rate cuts in September during his speech at the meeting.

From August 22nd to 24th, central bank governors and economists from around the world gathered at the Jackson Hole Global Central Bank Annual Meeting. Federal Reserve Chairman Powell will deliver a keynote speech on August 23rd at 10:00 am Eastern Time (Friday 22:00 Beijing Time), which will be live-streamed with no Q&A session afterwards.

So, what will Powell talk about this time? Which statements can be seen as signals for rate cuts? How should the market prepare?

Most on Wall Street believe that Powell may not provide too many clear explanations. Given Powell's character, he is likely to remain tight-lipped about the timing of rate cuts and is even less likely to reveal how much rates might fall.

Nevertheless, Powell still needs to give a brief review of the current economic situation and provide some limited but important guidance on the economic outlook. Investors will be sniffing out clues from the Fed's attitude towards the labor market, looking for hints of a rate cut in September.

How much will the usually tight-lipped Powell reveal this time?

Before the much-anticipated speech, analysts warn that the likelihood of Powell announcing any "amazing news" is slim.

Tom Hainlin, national investment strategist at U.S. Bank Wealth Management, said:

Looking back at past Jackson Hole speeches, we are unlikely to get very directive comments from Powell.

"They are still data-dependent," said Lou Crandall, former Fed official and chief economist at Wrightson-ICAP, who expects Powell to "not mince words on direction, but the specific pace and timing of rate cuts will depend on economic data released before the September rate decision.

Before the Fed's next rate decision on September 18th, there will be a non-farm payroll report (released on September 6th) for FOMC members to refer to.

Crandall said, the Fed will cut rates within the next quarter, but they will not provide any guidance on this issue at the moment.

Jack Janasiewicz, Chief Portfolio Strategist at Natixis Investment Managers Solutions, wrote in the report that for investors, the key lies in Powell's tone, expected to lean towards being "dovish"

In short, the inflation rate continues to trend towards the 2% target, seemingly higher than expected. Coupled with signs of a weak labor market, people may feel that there is no need for the Federal Reserve to maintain a hawkish stance.

Analysts such as Mark Cabana from Bank of America Merrill Lynch previously pointed out in a research report that the core of Powell's speech this time may be "maintaining labor market stability." Bank of America Merrill Lynch believes that if Powell more firmly indicates a commitment to preventing weakness in the labor market, this will be seen as an important policy signal.

If 2022 (the theme of Powell's speech) is about "determination," 2023 is about "data dependency," then 2024 may be about "maintaining labor market stability."

Goldman Sachs holds a similar view, with analyst David Mericle stating in a recent report:

Given the data released earlier, we expect Powell to express stronger confidence in the inflation outlook than he did at the July monetary policy press conference, and to emphasize more the downside risks to the labor market.

Goldman Sachs expects the Fed to cut rates by 25 basis points for three consecutive times starting from September, and believes that the market, after the weaker-than-expected July employment data, is pricing in a 50 basis point rate cut for the next meeting too aggressively.

The Higher the Expectations, the Harder the Fall?

The timing of this year's Jackson Hole Symposium is quite unique. On one hand, the Fed is at a crossroads of starting rate cuts, and on the other hand, global markets have just experienced a big rebound after a sharp decline.

Market expectations for Fed rate cuts have been extremely volatile amidst the market's sharp ups and downs. Currently, a rate cut in September is expected, but there is still uncertainty about the magnitude of the cut, requiring clear signals for further guidance. The next employment report will be released on the day before the Fed's silent period before the September meeting begins, making the August meeting the market's and Powell's only opportunity for "direct communication" before the September decision.

Analysts believe that whether last week's rebound can continue depends on whether Powell can provide a clear signal about a rate cut in September. Steve Sosnick, Chief Strategist at Interactive Brokers, stated:

I urge caution ahead of the Jackson Hole meeting, especially because the more premature the rebound, the more fragile the (stock market) may be.

Eric Beiley, Managing Director of Wealth Management at Steward Partners Global Advisory, commented:

If traders hear that a rate cut is imminent, the stock market will react positively... If we don't hear what we want, it will trigger massive selling Komal Sr-Kumar, head of Sri-Kumar Global Strategies, has a different view, stating:

Powell has always tended to support the stock market, implying time and time again. Although interest rates have not yet fallen, this time, his stance will still support the stock market