The Jackson Hole Economic Symposium is set to begin tomorrow, 22 August, with attention on chair Jerome Powell ahead of the US Federal Reserve’s September rate cut decision.
The stock sell-off at the beginning of August after weak unemployment data from the US created unease about the Fed’s July decision to hold rates. Now, markets have turned their attention to Powell’s speech on Friday for signals of what will come in September.
The latest inflation data for the US, released 14 August, saw the Consumer Price Index rise 2.9% year-on-year which remains above the 2% target. Currently, interest rates sit at a range of 5.25% to 5.5%.
See also: US CPI inflation hits 2.9% ahead of September Fed decision
Jack Janasiewicz, portfolio strategist at Natixis Investment Managers Solutions, said: “To us, the key will be chair Powell’s tone, which we expect to lean dovish. Simply put, inflation continues to trend towards the 2% target seemingly at a rate exceeding consensus. Combine this with signs that the labour market is softening and one gets the sense that there is little need to retain a hawkish stance.
“Expect Jay Powell to continue echoing what he has said during press conference around previous policy decisions – ‘data dependency’ and ‘greater confidence.’ While most pundits have begun to argue that the Fed is already restrictive given that inflation has come down while rates have remained pinned, still expect a measured approach to the easing cycle.”
While a September rate cut has been pencilled in by many, Danni Hewson, AJ Bell head of financial analysis, recalled that the year began with investors pricing in six rate cuts, none of which have happened so far.
“2024 will go down as the year when markets played, and often lost, the rate cut sweepstakes,” Hewson said.
“Now September is being tipped as the month for that first Fed cut after inflation finally dropped below 3%. How far Jay Powell and the FOMC will go, how deep that first cut will be, and whether or not it could be the only one delivered this year are now the questions on investors’ lips.
“This month’s market meltdown fell like a bucket of cold water on investor sentiment, which had been broadly accepting a soft landing would be achieved. Nerves that the Fed had been too slow have been somewhat allayed, but every word spoken at this week’s Jackson Hole Symposium will still be scrutinised.”
Despite a moment of market panic to begin the month, Isabel Albarran, investment officer at Close Brothers Asset Management, said concerns have quelled.
“A clutch of soft US economic data sparked market worries in the week of the July Fed meeting, with both labour market data and the ISM manufacturing survey coming in softer than expected,” Albarran said.
“This led markets to expect a double-strength interest rate cut in September, of 50bps. Markets have since recovered, boosted by stronger economic data, dispelling fears of a rapidly slowing US economy, and interest rate expectations have pared back.”
