Predicting the S&P 500 to surge to 6000 points a year ago, Evercore made a stunning statement: Powell will be open to a 50 basis point rate cut

According to the Zhitong Finance and Economics APP, Evercore ISI, a Wall Street investment institution that predicts the benchmark index of the US stock market - the S&P 500 Index is expected to surge towards the 6000 point level by the end of the year, has recently released another astonishing forecast report. This institution anticipates that Federal Reserve Chairman Jerome Powell will indicate at the global central bank symposium in Jackson Hole this week that while considering lowering the benchmark interest rate, policymakers at the Federal Reserve will also contemplate whether to cut rates by 50 basis points. Evercore's assessment of Powell's speech at the Jackson Hole meeting appears more aggressive compared to the general expectations on Wall Street. Most Wall Street analysts expect Powell to at most hint that the Federal Reserve is considering a rate cut, with possible vague wording on other aspects.

In a report released on Monday, Evercore stated that Powell may outline why the Federal Reserve is confident that inflation will sustainably decline to the 2% target anchored by the Federal Reserve, and outline the basic framework of the upcoming rate-cutting cycle. The policy focus may shift from combating inflation to focusing on labor market balance. Powell is scheduled to speak at 10 a.m. Eastern Time on Friday at Jackson Hole in Wyoming.

"We do not believe the Federal Reserve will clearly state whether they will choose to cut rates by 25 basis points or 50 basis points in September. Powell may suggest that this depends on the next set of labor market data to be released in September," said Krishna Guha, head of Evercore ISI's Global Policy and Central Bank Strategy team. "We believe Powell's views will reassure investors and align with a series of 25 basis points as a soft baseline, but he will convey the Federal Reserve's openness to a 50 basis point rate cut, which is not considered high."

Traders in the federal funds rate futures market believe there is a 77% chance that the Federal Reserve will initiate a 25 basis point rate cut at the monetary policy meeting on September 17-18. Concerns about a US economic recession surged in August, with the likelihood of a 50 basis point rate cut exceeding 50% at one point. However, this probability has significantly decreased with the release of exceptionally strong retail sales data and resilient initial jobless claims data. Currently, the federal funds rate stands at 5.25%-5.5%, the highest level in twenty years.

"We believe Powell will point out that the Federal Reserve's work on inflation is not yet complete, but he will depict progress in combating inflation since its peak," Guha said. The strategist also noted that Powell seems prepared to argue that the cumulative improvement in inflation data and the trend of labor market rebalancing will convince policymakers that inflation will persistently return towards the 2% target.

Evercore ISI stated that Powell may emphasize that the Federal Reserve will be "flexible and nimble" in readjusting policies. Additionally, Evercore also mentioned that the Federal Reserve will strive to convey a message that if a 50 basis point rate cut is chosen, this measure will be seen as a robust response by the Federal Reserve to ensure that the US economy achieves the policymakers' desired "soft landing," rather than the Federal Reserve acknowledging that the US economy is starting to encounter some issues Before the release of the astonishing forecast report predicting that Powell may reveal a 50 basis point rate cut, Evercore ISI, which has been bearish on the US stock market in the long term, has recently completely reversed its stance and turned to a strong bullish view on the future of the US stock market. The strategists at the firm predict that by the end of 2024, the US stock market will once again see double-digit gains, with the S&P 500 index setting record after record. Evercore ISI's stock strategy team has significantly raised its year-end forecast for the S&P 500 index to 6000 points, ranking it as the highest target on Wall Street. As of the Thursday close of the US stock market, the index closed at 5608.25 points.

The strategists at Evercore ISI emphasize that receding inflation and the AI boom led by tech giants will further drive the US stock market higher. "Today, the potential of artificial intelligence is positively changing every job and every industry. Slowing inflation, expected interest rate cuts by the Federal Reserve within the year, and expectations of an economic soft landing support 'blonde girl' style growth."

Market does not rule out Powell "playing Tai Chi" on rate cuts at Jackson Hole Symposium

Wall Street investment firms are generally betting that Federal Reserve Chairman Powell will fully confirm market expectations at the annual global central bank meeting in Jackson Hole, Wyoming, that the Fed is about to start this round of rate cuts in September.

However, compared to Evercore's aggressive expectations, many Wall Street investment firms still predict that Powell may easily remain silent on the timing of rate cuts when he speaks on Friday, or keep mum on the "timing of rate cuts" that the market expects, only indicating that the Fed has already taken rate cuts into consideration. Moreover, in previous years at central bank meetings, Powell has often chosen to be a "riddle man," adopting a cautious and non-committal attitude to cautiously reveal how high interest rates might reach during the Fed's rate hike cycle, which also fits his character.

For the global stock markets that experienced a "super rebound" last week, the Jackson Hole central bank meeting held on Friday night Beijing time will be a "key test," when Fed Chairman Powell and policymakers such as Bank of England Governor Bailey will deliver important speeches. During last Friday's trading hours, the options market priced in over 1% high volatility for the S&P 500 index this Friday, betting that the benchmark index will experience volatility exceeding 1% regardless of whether it rises or falls this Friday.

"If traders hear a heavyweight signal that rate cuts are imminent, the stock market will react positively," said Eric Beiley, Managing Director of Wealth Management at Steward Partners Global Advisory. "However, if traders and investors do not hear the positive information they want to hear, the stock market, after experiencing a big rebound, may face massive selling."

"The market is very confident that rate cuts are imminent," said Beiley from Steward Partners Global Advisory. "If Powell does not emphasize that this is the path forward, it will be a huge trigger."

Tom Hainlin, Chief Investment Strategist at US Bank Wealth Management, said, "Looking back at past speeches at the Jackson Hole Symposium, we are unlikely to get very specific comments on rate cuts from Powell." "

Former New York Federal Reserve Bank President Bill Dudley said that Federal Reserve Chairman Powell may suggest that overly tight monetary policy is no longer needed. However, he expects Powell not to indicate the magnitude and specific timeline of the first rate cut, especially since an important non-farm employment and unemployment rate report will be released on September 6, providing policymakers at the Federal Reserve with a more comprehensive assessment before making the next policy decision on September 18."

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