Live updates from Jackson Hole: Wall Street awaits key speech from Fed Chair Powell
Written by Bryan Mena, Elisabeth Buchwald, Samantha Delouya, Nicole Goodkind, and Krystal Hur, this article is brought to you by CNN.
The blog section was updated on August 25, 2023, at 8:25 a.m ET.
Investors Await Crucial Fed Speech; Wall Street Edges Up
On Friday, the US stock market experienced an upward trend as investors eagerly anticipated an important address from Jerome Powell, the Chair of the Federal Reserve.
Investors will eagerly pay attention to hints about future increases in interest rates, yet they are concerned that the longer-lasting rate hikes may cause economic distress, a situation they did not initially expect.
During an interview with Yahoo Finance, Susan Collins, President of the Boston Federal Reserve, stated that it is highly probable that the central bank will have to maintain elevated interest rates in order to decrease inflation.
"I believe it is highly probable that we will have to maintain [interest rates at their present levels] for a considerable duration," Collins remarked. "However, I wouldn't disclose the exact point at which the highest level will be reached right now. It is possible that we are close to [reaching the highest point], but it is also possible that we may need to increase a bit more."
Fed Policy Clashes With Reality In Jackson Hole, USA
Officials from central banks around the globe have gathered in Jackson Hole, Wyoming this week to engage in crucial discussions regarding policy measures that will significantly impact the economy in the long run.
However, while they discuss inflation and the economy in a theoretical sense, the people living in the sought-after tourist spot are directly experiencing the practical consequences of these policies. This is because Jackson Hole has been identified as the most unequal place in the United States in terms of its economic landscape, as reported by the Economic Policy Institute.
The majestic mountains covered in snow and the lush green valleys of Jackson Hole, Wyoming, where Federal Reserve Chair Jerome Powell is scheduled to deliver a much-awaited speech on Friday, are not only breathtaking but also carry significant meaning.
In Teton County, where Jackson Hole is situated, an astonishing $22.5 million is the average yearly earnings for those within the top 1%. On the other hand, the median household income in Teton County for 2021 was approximately $94,000, as reported by the US Census Bureau.
The yearly gathering in August of prominent financial experts and influential individuals in the economy would not take place without the assistance of the servers, chefs, chauffeurs, and personnel working in hotels and at the event. These very same individuals are bearing the brunt of increased inflation, soaring interest rates, and a weakening economy.
According to Kenan Fikri, who holds the position of research director at The Economic Innovation Group, a bipartisan policy organization, when it comes to income, Jackson Hole is a small-scale representation of the nation's wealth disparities that are scattered throughout the striking Mountain West region. Fikri claims that Jackson Hole is an ideal location for comprehending the impact of inflation on the financial struggles of lower-income households.
Powell Won't Bring Fireworks Now
During the Jackson Hole summit in the previous year, Jerome Powell, the Federal Reserve Chair, gave an impactful speech that took the markets by surprise and resulted in a significant decline of around 15% in the S&P 500.
According to analysts, Powell will not be able to recreate the same level of excitement this time. Markets are now more closely in sync with the Federal Reserve's leader, and the state of inflation has significantly improved.
However, according to Chris Rupkey, the chief economist at FwdBonds, there has never been a Jackson Hole speech that has been eagerly anticipated like this one.
He stated in a commentary released on Thursday that it is astonishing that the economy has managed to survive the $5 per gallon gasoline prices and the swift interest rate increases by the Federal Reserve last year.
Federal officials may have to adjust their economic models as the impact of monetary policy on the economy has decreased compared to previous years and decades. Fortunately, the decrease in inflation is a positive occurrence as it indicates that the economy is not losing momentum, according to Rupkey's analysis.
The present set of Federal Reserve officials is among the most fortunate in history, and it appears that the time for further increases in interest rates is approaching its conclusion. Although the struggle against inflation is not yet finished, the central bankers hold the advantage, as expressed by the author.
Jackson Hole: No Secrets, Only Adventures!
For the majority of the year, individuals travel to Jackson Hole, Wyoming, to engage in activities such as skiing, fly fishing, or merely appreciating the immense natural splendor of the area. However, during a three-day period towards the end of August, this city, located at the core of Grand Teton National Park, undergoes a remarkable metamorphosis into an economist's version of Woodstock.
At this gathering, prominent economists from around the world come together and interact with each other while engaging in conversations with journalists and eager investors seeking insights into their economic predictions. However, unlike the Grateful Dead, the star of the event happening from August 24-26 is Jerome Powell, the Federal Reserve Chair, who openly admits to being a dedicated fan of the band.
He is scheduled to appear at the 46th edition of this festival organized by the Kansas City Fed, which is officially called the Jackson Hole Economic Symposium, at 10:05 a.m. ET on Friday. However, even with all the excitement surrounding his appearance, his speech could be quite short, possibly lasting less than 10 minutes, similar to last year. Nevertheless, those concise comments made in 2022 had a significant impact on market turbulence.
Regardless of the outcomes of the conference this year, it is evident that whatever occurs in Jackson Hole does not remain confined to Jackson Hole.
Will Powell's Jackson Hole Speech Crash Stocks?
Last year, during the Kansas City Fed symposium in Wyoming, Federal Reserve Chair Jerome Powell cautioned that US households would experience considerable hardship if interest rates were increased. In reaction to his statement, the Dow Jones Industrial Average index plummeted by 1,000 points.
Does the past have a tendency to recur?
Several investors express their anticipation for Powell to affirm the Federal Reserve's dedication to controlling inflation, while also recognizing the advancements achieved so far.
However, experts suggest that the market will not show such a drastic response on this occasion. This is because Powell's speech is expected to be comparable to the comments he has made after previous policy meetings.
According to a note from Evercore ISI strategists on Tuesday, don't anticipate an overly aggressive approach, but the Federal Reserve is not willing to allow inflation to escape its control despite the progress made so far.
There is uncertainty regarding whether the Federal Reserve will increase interest rates once again in the current year. However, Federal Reserve Chair, Jerome Powell, has indicated the likelihood of at least one more rate hike. On the other hand, Wall Street is focusing on the conclusion of the central bank's vigorous campaign of raising interest rates, which marks a significant contrast from the previous year.
"In August 2022, Powell was aware that the Federal Reserve had several additional increases in interest rates planned. Presently, the Federal Reserve might be approaching the conclusion of these rate hikes. This situation will necessitate Powell to adopt a more subtle and refined approach in his public statements," stated Tom Graff, the investment department leader at Facet.
Traders have a strong belief, about 85% certainty, that the Federal Reserve will keep interest rates stable during their upcoming meeting in September, as indicated by the CME FedWatch Tool. Speculation regarding the central bank's actions for the remainder of the year is not as unified, with slight majorities leaning towards no adjustments in rates in either November or December.
Fed May Continue Rate Hikes, Says Bullard
Former President of the Federal Reserve Bank of St. Louis, James Bullard, cautioned in a recent interview that the United States economy has not sufficiently slowed down for the Federal Reserve to halt its efforts to increase interest rates.
Referring to the abundance of positive economic reports during the summer, Bullard informed Bloomberg that this renewed growth might lead to an increase in inflation and a potential postponement of the Federal Reserve's policy change.
He stated that if there is any additional pressure on inflation, it would indicate that the Fed would likely have a higher interest rate trajectory than originally anticipated.
Based on the recorded discussions from its previous gathering held in July, Federal Reserve officials are anticipating an increase in interest rates later in the year. Nevertheless, a few investors are speculating on a decrease in rates as early as the beginning of next year.
Coordinating When Economies Diverge: Central Bank Roles?
The inflation predicament on a worldwide scale compelled the central banks of various nations to synchronously increase interest rates over the course of the previous year. However, with the alteration in the economic scenario, adopting different strategies could potentially lead to future complications.
So, how should financial institutions collaborate when their economies are moving in opposite directions?
It's a subject that will probably be discussed this week as central bank officials from various countries gather in Jackson Hole, Wyoming, to talk about "Major Changes in the Global Economy" at the yearly conference on economic policies organized by the Kansas City Federal Reserve.
Effective communication and collaboration among central banks have played a crucial role in the last three years. Moreover, international monetary policy has displayed remarkable similarities since the emergence of the pandemic. Numerous prominent global economies, including the United States, Saudi Arabia, and Malaysia, significantly reduced interest rates in March 2020 to boost their struggling economies during the Covid-induced lockdowns. Subsequently, these economies have embarked on a proactive path of aggressively increasing interest rates over the past couple of years.
However, although the initial stages of the pandemic had a similar impact on the global economy, the recovery has varied, with certain countries like the United States experiencing a faster resurgence compared to others.
The policies related to global currency and finances, which were formerly in complete harmony, are now starting to move in different directions.
