abrdn: Jackson Hole chance for Jerome Powell to strike back against dovish interpretation of Fed policy

abrdn: Jackson Hole chance for Jerome Powell to strike back against dovish interpretation of Fed policy

25 augustus 2022

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This is a preview by Luke Bartholomew, Economist at abrdn, on Jerome Powell's address at Jackson Hole tomorrow.

The Fed has been trying to de-emphasise the significance of Jackson Hole as a market-moving event in recent years. However, a speech by Chair Powell will always be of significance, and it feels like the speech this year comes at a particular important moment for the market. Powell’s statement last year gave five reasons why he expected high inflation to be transitory. It is safe to say he will not be repeating that same message this year.

Indeed, his speech may explicitly involve a ‘mea culpa’ on the Fed’s forecasts in general as a way of trying to demonstrate what the Fed has learned about inflation this year. Powell is likely to stress that policy still has a long way to go before the Fed will feel comfortable it has decisively turned the corner on restoring price stability.

This is important because the market has behaved recently as if the Fed has pivoted away from its hawkish stance. It is hard to believe the Fed leadership is comfortable with how financial conditions have become much more accommodative after the last month, and so Powell will use this speech as an opportunity to push back against this more dovish interpretation of Fed policy that has arisen recently. Any failure to do so will be taken by markets as a greenlight for risks assets to rally further, which will likely result in the Fed having to deliver even more interest rate increases.

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