Topline
Federal Reserve chairman Jerome Powell will soon provide an update at the central bank’s annual gathering focused on long-term goals, as the market watches on pins and needles amid the most severe tightening cycle in four decades after Powell’s speech this time last year spooked investors.
Key Facts
Powell will take the stage Friday at 10:05 a.m. ET as part of the three-day gathering in Jackson Hole, Wyoming.
At the same gathering last August, Powell famously warned the U.S. may need to enter a “lengthy period of very restrictive monetary policy” that will “bring some pain,” sending the market — long-used to a friendly Fed and lower interest rates — into a tizzy.
The S&P 500 fell more than 3% the day of Powell’s 2022 speech and crashed 13% a month after Jackson Hole, as stocks bottomed out at their lowest level since 2020.
Despite last year’s cataclysm, Jackson Hole historically does not swing markets – the S&P inched up an average of 0.3% in the month after the symposium took place between 1978 and 2022, according to Dow Jones data.
Powell will probably “be light lipped” in Jackson Hole, according to Comerica’s chief economist Bill Adams, while Goldman Sachs strategists Lexi Kanter and Michael Cahill said they don’t expect to get any “strong monetary policy signal” this weekend.
Contra
Tom Lee, head of research at boutique equity research firm Fundstrat, predicted earlier this week there’s a more than 80% chance equities will gain after Powell’s speech Friday. The S&P was positive the week after Jackson Hole in six of the seven instances it entered the meeting with a two-week losing stretch as it is set to presently, according to Lee.
Key Background
Powell’s whirlwind five-year tenure as the U.S.’ top banking official has been largely defined by his response to the U.S. enduring its highest inflation since the early 1980s, climbing as high as 9.1%. Beginning last March, the Fed hiked the federal funds rate from near-zero to 5.25% to 5.5%. The stock market, which typically enjoys lower interest rates as lower borrowing costs translate to higher corporate profits, has in turn slipped from its early-pandemic record levels. The S&P is down 8% from its late 2021 peak, despite a 15% gain year-to-date.
What To Watch For
Upcoming releases which will shed further light on the impact of the Fed’s tightening campaign. The personal consumption expenditures price index’s monthly update, Powell’s favored inflation metric, will come out next Thursday, while the Labor Department will release its monthly employment report.
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