Powell’s Jackson Hole speech cautious – stocks slide 2%

Key Takeaways:

• Powell’s speech in Jackson Hole was still hawkish.
• The Fed will not pivot from its battle against inflation until the latter is down to 2%
• Equities slid 2% in anticipation, printing a feeble green candle during the speech.

YEREVAN (CoinChapter.com) – Federal Reserve Chair Jerome Powell gave a speech on monetary policy at the economic symposium at Jackson Hole, Wyoming, scheduled for 10:00 a.m. ET on Aug 25. He took a cautious approach, “kicking the ball in the middle” between easing on hawkish policies and avoiding recession.

The Fed Chair stuck to his guns, asserting that no pivot is expected at this point, even though the core inflation rate has been lowering in the past three months.

It is the Fed’s job to bring inflation to our 2% goal, and we will do so. We have tightened the policy significantly in the past year. Although inflation has come down from its peak, it remains too high. We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level.

said Powell.

The Chair also asserted that the Fed intends to “proceed carefully” and watch the upcoming data. Moreover, he added that the latest downtrend in core inflation is not sufficient to “lower the weapons.”

Two months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal. 12-month core inflation is still elevated, and there is substantial further ground to cover to get back to price stability.

Added the official.

Stocks slid 2% in anticipation of bad news

Market participants expected the speech to impact the equities negatively. Joseph LaVorgna, chief economist at SMBC Nikko Securities America, said the Fed doesn’t have to “push back against a market narrative that’s looking for imminent easing” anymore, which had been the case in the past year.

I don’t know how hawkish he needs to be given the fact that the funds rate is clearly in the restrictive territory by their definition and the fact the market has finally bought into the Fed’s own forecast of rate cuts not happening until around the middle or second half of next year.

the expert added

Quincy Krosby, chief global strategist at LPL Financial, commented that Powell would risk his credibility if he pivoted in the Jackson Hole speech.

He’s got to strike that chord that the Fed is going to finish the job. The fact is, it’s about their credibility. It’s about his legacy. He’s going to want to be a little more hawkish than neutral. But he’s not going to deliver what he delivered last year. The market has gotten the memo.

commented Krosby.

Markets Thursday braced for an unpleasant surprise, with stocks selling off and Treasury yields climbing. As seen in the chart below, the S&P 500 index (SPX) declined 5% since the latest interest rate revision in July.

On Friday, during the speech, SPX printed a green candle, although a confident uptrend is unlikely to follow if the Fed goes through with another interest rate hike.