Look for Another Hawkish Jackson Hole Blast from Powell

The Fed chair, in a Wednesday speech at Brookings, is expected to drive home once again that the central bank is going to continue its relentless tightening.

Federal Reserve Chair Jerome Powell seems poised to do another Jackson Hole on Wednesday afternoon. Meaning, douse recent optimism that the Fed’s interest-rate hikes will taper off and perhaps reverse.

For the last couple of days, investors have displayed concern about Powell’s speech at the Brookings Institution, expecting a hawkish tone that might send stocks lower. The S&P 500, which has dipped over the past two trading days this week after rising last week, could be in for another slump following Powell’s speech at Brookings.

Powell last gave investors a cold bath in his remarks at the Kansas City Fed’s annual policy forum in Jackson Hole, Wyoming, in August. On that occasion, he signaled that the U.S. central bank was likely to continue its tightening campaign and leave rates elevated for a while to push down high inflation. The index, which had been going up, promptly lost 6% over the next few days.

Doves have taken heart last week from the release of the Fed policymaking panel’s minutes of its November meeting. The minutes stated that the Fed might soon moderate the pace of rate boosts, with a half-point increase at its December meeting. Many investors took that to mean the Fed’s rate escalation was near or at an end.

After the last four increases at a 0.75-point rate, “a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,” according to the minutes.

Several Fed officials, such as St. Louis Fed President James Bullard and Fed Vice Chair Lael Brainard have given hawkish speeches in recent days, seeming to pave the way for Powell’s Brookings appearance.

“They are all setting the stage for a hawkish performance from Chairman Powell on Wednesday, despite the step-down in the pace of rate hikes,” wrote Mike O’Rourke, chief market strategist at JonesTrading, in a client note, per Bloomberg.