Wall Street's Verdict On Powell's Jackson Hole Address: A Balanced Play On Interest Rates

In a keenly-watched address at the Jackson Hole Economic Policy Symposium, Federal Reserve Chair Jerome Powell set the stage for potential interest rate hikes, reiterating the Fed’s commitment to price stability.

Wall Street, always ready to interpret and forecast based on Fed speak, has a range of takes on the speech.

Powell's Comments: Powell signified the Fed’s readiness to raise interest rates if deemed suitable. His remarks clearly demonstrated the Fed's commitment to price stabilization, stressing that the interest rates would be held restrictive until a consistent drop in inflation is observed.

On the journey ahead, Powell said, “Core inflation is still elevated, and there is ground to cover to achieve price stability.”

Markets realigned their interest rate hike expectations post Powell’s remarks. According to CME Group data, the possibility of an interest rate hike in September has soared to 21.5%, and by November, the chances stand at 52%. Read more on Powell here.

Quincy Krosby, chief global strategist at LPL Financial, said that Powell is sticking to a familiar narrative by acknowledging the gradual decline of inflation. Krosby noted the market responded positively to Powell’s comments, as they align closely with his previous statements.

On the other hand, Bill Adams, chief economist at Comerica Bank, pointed to Powell’s candidness in his speech, reflecting the Fed’s mission to bring inflation down to their 2% target. Adams said the Fed is heavily reliant on data, suggesting they might raise interest rates further to ensure inflation control.

He also said Powell’s emphasis on the high benchmark for retracting the stimulus indicated the current financial conditions might extend into 2024.

Read Also: Larry Summers Weighs In On ‘Sobering’ Data Hinting At Another, Bigger Inflation Wave Rising: Is The Fed Justified Not Dropping Guard?

Jeffrey Roach, another chief economist at LPL Financial, said Powell’s speech resonated with a consistent message. He noted Powell’s call for a balanced strategy, especially considering the uncertainties characterizing the post-COVID-19 pandemic economy.

Roach anticipated the Fed might not change interest rates in the upcoming September meeting, but they’ll likely adopt a more data-focused approach by November.

Chris Zaccarelli, chief investment officer for the Independent Advisor Alliance, said that while Powell’s flexible stance on interest rate hikes was expected, many anticipated a more hawkish tone.

Zaccarelli saw Powell’s careful stance as an indication that interest rates might be maintained in the next few meetings in light of the downward trend in core inflation.

He also pointed to the market’s immediate downturn after Powell’s speech but remained optimistic, saying that if inflation continues its current trend, the year might end on a more upbeat note.

SPY Price Action: The broad market SPDR S&P 500 ETF Trust SPY fell nearly 1.3% on Powell's initial comments, but recovered to currently trade 0.44% higher from Friday's market open.

Read Next: Fed’s Harker Breaks Ranks With Powell, Rejects Further Rate Increases, Signaling Board Dissent

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