What Will Jackson Hole Reveal This Year? — Evening Brief – 08.20.24
The annual Jackson Hole Economic Symposium in Wyoming begins on Thursday, with Federal Reserve Chair Jay Powell due to speak Friday at 10 a.m. ET. The conference has historically influenced expectations for future monetary policy.
This year’s conference of central bankers, policymakers, and others differs from the previous year’s event in terms of monetary policy. In 2023, the S&P 500 traded around 4,300; it is currently about 30% higher. The Bureau of Labor Statistics reported high employment numbers at the time. Powell anticipated increases in interest rates would take time to counteract high inflation levels. Furthermore, core PCE inflation of about 4% was above the Fed’s 2% target, and US Treasury yields reached a post-GFC high, with the 10-year yield hitting 5% last October.
The markets are approaching this year’s symposium – “Reassessing the Effectiveness and Transmission of Monetary Policy” – with a far more positive mindset than two weeks ago, let alone last year, since the extraordinary volatility seen at the start of August appears to be a far-off memory.
Central bankers will undoubtedly experience greater satisfaction with their policy instruments than they did during the previous two symposiums. Most analysts expect Powell to pave the way for a September interest rate cut. Recent inflation measures, such as the Consumer Price Index (CPI) and Producer Price Index (PPI), have slowed, although retail sales and employment data remain robust.
“Powell has already said that a rate cut could be on the table at the September meeting, a view that has been backed up by several other Fed officials in recent weeks,” Bryan Jordan, Chief Strategist at Cycle Framework Insights, Inc., told Connect Money. “It is likely, then, that the Fed chair will indicate on Friday that his confidence in the disinflation trend is growing and that the downside risks in the labor market, while still modest, are building.”
This year’s event coincides with U.S. PCE inflation falling to 2.5%, the unemployment rate rising by 0.6 percentage point since the beginning of 2024, and the Fed holding interest rates steady for the last 12 months. The U.S. 10-year yield has dropped below 4% again due to market expectations of 95 basis points of interest rate reductions over the last three meetings of 2024, and an additional 200 basis points of easing by October of next year.
Meanwhile, the S&P 500 has been up eight out of the past nine trading sessions, the best run since October 2022, and has moved to within 2% of its all-time high. The VIX closed last week at 14.80, dipping below 15 for the first time in over three weeks. This comes as a 50-basis-point interest rate cut in September is now just over 30% priced in, although down from fully priced on August 5 and 55% a week earlier.
The precise course of interest rate reductions is probably going to remain data dependent. However, with monetary policy risks clearly visible after the election, interest rate cuts beyond the first 75 basis points to 125 basis points are hazier.
“This has already been a relatively long interval between tightening and easing cycles. Historically, the lag between the end of a rate hike cycle and the beginning of a rate cut cycle has been less than six months,” noted Jordan.