While traders will be closely watching the Federal Reserve’s annual Jack Hole symposium for clues on future interest rate hikes, history shows that the event rarely moves markets in a big way and experts predict that it is unlikely the central bank will pull back from its path of aggressively raising rates to tame inflation.
Investors were cautiously optimistic ahead of Fed chair Jerome Powell’s speech at the Jackson Hole symposium on Friday, with stocks rising slightly on Thursday as anticipation builds for any new clues on the direction of future monetary policy.
Despite some optimism in markets about inflation cooling last month, the central bank has indicated that it is unlikely to take its foot off the pedal in raising interest rates until there is a clear slowdown in inflation, which will “take some time.”
“Every Fed official is saying some variation of the same thing—we have more tightening to do and while there has been some good news on inflation, the battle has a long way to go,” explains Vital Knowledge founder Adam Crisafulli.
Despite the excitement around Jackson Hole, the conference is historically “unremarkable as an equity market catalyst” and is unlikely to change market expectations about more rate hikes later this year, according to Bespoke Investment Group.
The S&P 500’s average performance dating back to 1979 “suggests very modest gains around the conference before a more sustained rally,” according to the firm—though that remains to be seen this time around as inflation roars and stocks struggle to find their footing following a summer rally that has fizzled out.
“Everyone remembers Powell’s mistake” when the Fed chair stuck to the “inflation is transitory” narrative at last year’s Jackson Hole Symposium, “so he will be extra motivated to make sure his message is clear and aggressive about fighting inflation,” predicts Oanda senior market analyst Edward Moya.
What To Watch For:
Investors are in particular hoping for more clues on the magnitude of the Federal Reserve’s next rate hike at its upcoming policy meeting in September. Traders largely predict a third consecutive increase of 75-basis-points, following similar increases in both June and July, rather than a smaller 50-basis-point hike, according to CME Group data. Without August consumer price data in hand, however, Powell is unlikely to signal any “strong preference for policy action at the September meeting,” Nomura analysts predict. “Powell may more clearly acknowledge the potential for ‘some pain’ as a result of the Fed’s efforts to restore price stability,” the firm warns, also highlighting “rising recession risk” going into next year.
In 1982, the Kansas City Federal Reserve was looking to make their annual economic symposium into a big event by inviting Fed chairman Paul Volcker. The regional Fed officials learned that the best way to persuade Volcker into accepting an invitation was to promise him with good fly fishing—so they located the event at Jackson Hole, recalls former Kansas City Fed President Tom Hoenig. The first night of the opening dinner in 1982, Volcker and a friend arrived late and “still in their fishing gear,” Hoenig recently told Marketplace.