Jackson Hole Symposium Preview: Why Powell's Friday Speech Is Critical For Investors

The SPDR S&P 500 ETF Trust SPY traded lower by 1.6% on Monday as investors brace for what could be a hawkish speech by U.S Federal Reserve Chair Jerome Powell at the Jackson Hole Symposium on Friday. Here's what investors need to know.

What Is The Jackson Hole Symposium? The Jackson Hole Symposium is an annual economic summit in Jackson Hole, Wyoming. The event is hosted by the Federal Reserve Bank of Kansas City and includes central bankers, academics and economists from all around the world. The Federal Reserve always gives a speech at the event, and Powell's 2022 speech is expected to be all about inflation.

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Why Does The Jackson Hole Symposium Matter? The S&P 500's weakness throughout 2022 has been driven by two related factors: inflation at multi-decade highs and the Federal Reserve's monetary policy tightening to combat inflation.

The S&P 500 rallied in late July and early August after the latest batch of monthly inflation numbers revealed inflation may have finally peaked. Unfortunately, inflation remains at historically high levels, and the recently released Federal Reserve July meeting minutes suggest the Fed will likely continue to aggressively raise interest rates at its next meeting in September.

The Federal Reserve has issued back-to-back 0.75% interest rate hikes at its last two meetings, and the big debate on Wall Street at this point is whether or not another 0.75% hike is in the works. Ahead of the Jackson Hole meeting, the bond market is pricing in a 56.5% chance of another 0.75% rate hike in September and a 43.5% chance the July inflation numbers were good enough for the Fed to dial it back to just a 0.5% hike.

The Federal Reserve will also double the pace of its balance sheet reduction in September, allowing $60 billion in assets to roll off per month instead of $30 billion.

Powell has been consistent with his message on inflation in recent press conferences and public speeches, telling investors the U.S. economy is solid and the Fed will do whatever it takes to get inflation back down near its long-term target of 2%.

"Over coming months, we will be looking for compelling evidence that inflation is moving down, consistent with inflation returning to 2 percent," Powell said following the Fed's July rate hike.

"While another unusually large increase could be appropriate at our next meeting, that is a decision that will depend on the data we get between now and then."

Benzinga's Take: The Federal Reserve has historically tried to be as transparent as possible about its intentions well prior to any major monetary policy changes. Investors should expect Powell to keep the Fed's options open at this point given members will get another batch of monthly inflation data between now and the September meeting.

Photo: Federal Reserve