published : 2023-08-25

Fed's Powell May Hint towards Further Rate Hike in Jackson Hole Speech

Market Speculation Gears Up ahead of Federal Chair Powell's Keynote in Jackson Hole

Jerome Powell giving a speech at a lectern, with various microphones set up in front of him, and a backdrop illustrating financial graphs. The mood in the room is anticipatory. Camera setup: Taken with Canon EOS 5D Mark IV.

The world's financial eyes turn towards Federal Reserve Chair Jerome Powell as he gears up for the keynote speech at the central bank's summer symposium in Jackson Hole, Wyoming, on Friday. A year back, at the same symposium, Powell set the stock market on a rollercoaster ride with his forecast of an economic discomfort resting on the Fed's ongoing battle against inflation.

"Higher interest rates, a slowing economy, and softer labor markets will inevitably lead to decreased inflation, yet it will inevitably inflict some injury on households and companies. These are the unfortunate consequences of lessening inflation. However, not reinstating price stability would cause even greater distress," said Powell.

Over the past twelve months, the economy has seen a declining trend in inflation, falling from a high of 9.1% to 3.2%, despite a surprisingly robust job market.

As Powell re-emerges at the Fed's annual conference in Wyoming, his keynote speech will be dissected meticulously by investors searching for signs of the Fed's next moves in combating inflation. Pessimism circles the room as observers predict Powell will not indicate an end to the tightening campaign just yet.

An image representing the Federal Reserve System. It could utilize symbolic representation with a 3D render of financial graphs, dollars, and coins in the background to indicate the economic stakes. Ensuring the notion of high stakes and anticipation translates in the image. Camera setup: Taken with Nikon D850.

Joe Kalish, Chief Global Macro Strategist at Ned Davis Research, anticipates, "Powell will leave the door open for another rate hike, committing future decisions to fluctuating data.", adding that "The main contention will be the duration of the Fed's restrictive stance. Conversely, the Fed is anticipated to maintain a constricting bias."

The Fed trio of meetings for the remainder of the year - in September, November, and December - leaves room for speculation. The market seems expectant for the central bank maintaining stable rates for the upcoming meeting in September, with a predilection for another hike in November based on the CME Group's FedWatch.

Statistics from earlier this month reveal a surge in inflation, the first such acceleration in the figure after more than a year, further highlighting the long road to harnessing high inflation. Core prices too, that exclude unstable measurements of food and energy, see a rise of 0.2% or 4.7% annually. This infers that both core and headline inflation remain well above the Fed's 2% desired rate.

According to John Vail, Chief Global Strategist at Nikko Asset Management. Powell’s speech is expected to show concern about 'inflation not decreasing quickly enough,' suggesting that 'the market should foresee no cuts till at least early 2024.'

Close-up shot of a tense trader or investor staring intently at computer screens displaying real-time trading information. The focus is on the person (not recognizable) and the screens, emphasizing the high-stakes world of financial markets as they anxiously await the Fed's next move. Camera setup: Taken with Sony Alpha a7 III.

In the previous year, policymakers have stepped on the rate pedal, approving 11 hikes in hopes of curbing inflation and cooling the humming economy. The jump from near-zero to above 5% interest rates in just 16 months marks a sharp increase unseen since the 1980s.

Interest hikes typically result in higher consumer and business loan rates, slowing the economy by cutting employers' expenditure. The move has pushed the average rate on 30-year mortgages above 7% for the first time in years and hovered borrowing costs for everything from home equity lines of credit, auto loans, and credit cards.