- Fed Chair Powell’s speech at Jackson Hole is unlikely to provide immediate news to markets.
- Comments on the long-term, emerging markets, and the central theme of the event matter more.
Fed Chair Jerome Powell will speak on Friday, August 24th, at the Jackson Hole, Wyoming, at the Kansas City Fed’s annual conference. The event yielded significant headlines in the past. Markets usually focus on the next rate decision, but we already have the answer.
The latest FOMC Meeting Minutes laid the ground for a rate hike in September. The Fed all but said it out loud. Since that Fed meeting, the US economy has not changed materially. So, Powell will unlikely comment on the upcoming increase, especially as the event is of an academic nature.
However, his talk may consist of market-moving headlines.
1) Emerging markets
The Fed is raising interest rates due to the improving economic situation in the US and keeping inflation in check. However, the US Dollar is the reserve currency of the world, and many loans are denominated in USD. Any change in US policy impacts the world. The recent Turkish crisis, the issues in Argentina, and the fall of the Russian rouble are only some examples.
In the past, Powell clarified that the US central bank concentrates on US policy. Nevertheless, in an interconnected world, a slowdown overseas may come to bite the US. It will be interesting to hear Powell’s take on the global economy.
If the Fed considers other countries, it means slowing down the pace of hikes, thus weakening the US Dollar. If Powell sticks to the US economy, it will keep the US dollar bid.
2) Trade Tariffs
Central bankers are against higher tariffs. The ECB has made it clear that it fears protectionism. The Fed has been much more careful, in order not directly criticize President Trump and step out of line.
However, it will be hard avoiding the hot topic. A growing concern about future global trade could indicate that the Fed is ready to slow down rate hikes. Maintaining the current rhetoric unchanged will likely limit any reaction.
At the moment, China and the US are talking, but on a low level and without any hopes. The US is set to impose
3) Growing concentration
The rising market shares of large companies is the central topic of this year’s event, or officially “Changing Market Structure and Implications for Monetary Policy.” It has more significant implications for companies rather than currencies. Nevertheless, Powell may discuss the deflationary pressures coming from Amazon’s low prices. If inflation remains relatively depressed in the context of near full employment, it will serve as a signal that the Fed may slow down.
On the other hand, concentration and near-monopolist market shares keep consumers captive and may push prices higher. In general, Powell’s conclusions from growing concentration on inflation and monetary policy may also move markets.
All in all, the short-term policy is well-known, and we can get hints about the long-term plan.
More: Strong Dollar: 4 things that could halt the Fed hikes and send the Dollar down
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