The Big Question: What Will Powell Say at Jackson Hole?

This marks the one-year anniversary of his wrongheaded pronouncement that inflation would be ‘transitory.’

What’s he gonna say, anyway? Wall Street wonders just how hawkish Federal Reserve Chair Jerome Powell will be when he addresses the Fed’s economic policy conference at Jackson Hole, Wyoming, on Friday.

At last year’s gathering, he infamously assessed then-burgeoning price increases as “transitory.” Then came the steepest inflation surge in four decades. Powell was forced to walk back his comment three months later, and started hiking interest rates in a bid to reverse the ominous inflation trend.  

“Everyone remembers Powell’s mistake,” observed Edward Moya, senior market analyst for the Americas at OANDA, in a research note. This time, Moya said, much of Wall Street expects the Fed head to be hawkish. The question is how much. Regardless, Powell’s remarks should “quash” any predictions that the Fed will “pivot” and lower rates in 2023, Moya went on.

“The broad expectation” for the Friday speech is that Powell will continue “his narrative on fighting inflation while dissuading markets from the notion that the Fed has made a dovish pivot,” David Norris, partner and head of U.S. credit at TwentyFour Asset Management, said in a note. “Markets are anticipating a more hawkish statement from Powell along the lines of a ‘higher for longer’ narrative on interest rates.”

The larger question is what will happen after the Fed policymaking panel’s meeting in late September. The futures market anticipates that the Fed will boost its benchmark rate next month by 0.75 percentage point, as it has during its previous two meetings. By next summer, the betting is for, at most, another 0.75 point increase.

Escalating wages and job openings, along with low unemployment, are all arguments for a more hawkish approach, strategists say. However, the economy did contract for two quarters in a row this year, the rough measure of a recession.

These factors no doubt will weigh on Powell when he speaks to the Jackson Hole crowd. But, Moya said, “this symposium historically is not a forum where surprises are common.”