Powell's speech is unpredictable, this data will bring dovish risks!

Jerome Powell is in a difficult position: he has ample reason to cut interest rates, but also ample reason to maintain the status quo.

Recently, conflicting economic data has caused market volatility. On August 2nd, the US Department of Labor reported that the unemployment rate rose to 4.3% in July, triggering the Sam rule and calls for a significant rate cut by the Federal Reserve. However, relatively robust retail sales reports and a second consecutive week of declining initial jobless claims have led many economists and Wall Street leaders back to the "soft landing" camp.

The difficulty in interpreting economic data means that the content of Powell's speech has become unpredictable.

David Mericle, Chief Economist at Goldman Sachs, wrote in a report on Monday, "Powell may reiterate the information he provided at the July press conference, that the FOMC is closely monitoring labor market data."

Mericle believes that there is a higher likelihood of a 25 basis point rate cut in September rather than 50 basis points. This is in line with expectations in the bond market. According to the CME Group's FedWatch tool, the current trading volume indicates a 77.5% probability of a 25 basis point cut and a 22.5% probability of a 50 basis point cut.

Ed Yardeni, Senior Market Analyst at Yardeni Research, also expects Powell to lock in a 25 basis point rate cut at the Jackson Hole meeting. However, in his report last Sunday, he pointed out that Powell will also reiterate the strong economic performance, suggesting that even without a rate cut, inflation is receding, casting doubt on the long-term prospect of further rate cuts.

Yardeni wrote, "Chairman Powell may also question the expectations for rate cuts in November and December," as he believes we are in a "roaring 2020s" driven by technological innovation and productivity enhancements, and emphasizes that Powell will continue to "rely on data."

This Wednesday, the US Department of Labor will release a significant revision of wage data estimates for the period from April 2023 to March 2024. The market expects the report to show far fewer jobs created in the US economy than initially expected. Quincy Krosby, Chief Global Strategist at LPL Financial, stated that this data could alter Powell's speech on Friday, making it more dovish.

She wrote, "The market has recently experienced a growth scare, leading to concerns that the Fed is behind the curve, so it will closely watch the release of the benchmark revision on Wednesday to validate whether the initial market reaction was correct. If the report shows that the actual number of jobs created is significantly lower than initially announced in the monthly wage report, Chairman Powell's concerns about a weak labor market may be amplified in his speech."

Krosby, like others, pointed out that Powell has made it clear that he is closely monitoring significant signs of a slowdown in the labor market and is "prepared to act when necessary."

Andrew Hollenhorst, Chief US Economist at Citigroup, also expects the Fed to be more dovish **For months, they have been believing that the labor market is softening, and a hard landing is imminent. The latest weak employment report confirms that this trend has accelerated to some extent.

Hollenhorst wrote on Monday, "Despite Powell's optimism about achieving a soft landing, he is becoming increasingly concerned about guarding against downside risks in the labor market. We believe that Powell mainly carries dovish risks in his speech at the Jackson Hole on Friday, and may further hint at a faster pace of rate cuts."