What will Powell say at Jackson Hole, and how will the market react?

For Wall Street, the focus of this year's Jackson Hole is likely to be Federal Reserve Chairman Powell's speech, scheduled for Friday.

The annual symposium comes at a crucial moment for the U.S. economy. The Fed's policy rate has been at multi-decade highs over the past year, helping to curb inflation and slow economic activity. At the same time, the unemployment rate is rising, leading Wall Street to believe that the Fed will begin cutting rates in September.

The Fed has already set the tone for rate cuts. After years of focusing on inflation, policymakers have in recent months indicated that they are also paying attention to the strength of the labor market, the second part of the Fed's dual mandate. Powell reiterated this view after the latest Fed policy meeting.

Investors will closely watch Powell's speech on Friday for any hints about the trajectory of monetary policy, including the magnitude of the Fed's first rate cut in years and the potential pace of subsequent cuts.

What might Powell say at Jackson Hole?

Analysts do not expect Powell's speech to deviate significantly from his press conference after the Fed's July meeting.

Nomura Securities analysts wrote in a report last Friday, "Powell may acknowledge that if the labor market deteriorates, the Fed is prepared to ease policy quickly."

The health of the labor market was called into question earlier this month when data showed the unemployment rate jumped to 4.3% in July, triggering the Sam rule.

Nomura Securities analysts added, "Nevertheless, we expect his remarks to be more balanced than the July press conference—while also pointing out the risks of rising inflation."

Last week, concerns about a recession eased after strong consumer spending reports and a slight drop in initial jobless claims, indicating the economy's resilience.

Subsequently, the market entered a relatively calm state as expectations for a Fed rate cut moderated. Last Monday, according to federal funds rate futures trading data, traders saw a 50% chance of a 50 basis point rate cut by the Fed next month.

Now, the market sees only a 23% chance of a 50 basis point rate cut.

Nomura Securities noted that the market calm "should allow Powell to emphasize that the Fed can afford to be patient and data-dependent, moderately pushing back against recent market overpricing of rate cuts."

Economists at Deutsche Bank wrote in a report on Monday that they expect Powell not to "pre-commit to any specific rate cut path, but to signal that the Fed is confident enough to soon begin easing policy."

How will the U.S. stock market react?

Even if Powell takes a dovish stance, it may not have a significant impact on the market.

Analysts at Bank of America Securities recently pointed out that the S&P 500's historical reaction to the Jackson Hole conference has been limited. Of course, there are exceptions: in 2022, when Powell took a hawkish stance on the necessity of restoring price stability, the stock market subsequently plummeted However, they expect that this situation is unlikely to occur this year. Analysts wrote: "As the market has already priced in the rate cut factor, even the upside potential brought by a dovish Jackson Hole speech by Jack Ma may be limited."