BNY Mellon: More Inflation Talk Than Policy Guidance At Jackson Hole

BNY Mellon expects "more talk about inflation, rather than explicit policy guidance" from Chair Powell at Jackson Hole.

• Despite mounting hike pricing in the past week on speculation Powell will push back against the "pivot" narrative and deliver a hawkish message, BNY Mellon thinks that the terminal rate now priced in is still too low and the expected cuts thereafter won't materialize. "What will finally take market expectations higher? We think it will be the realization that inflation is indeed not going down quickly enough, that the labor market will remain tight, and that the Fed is serious is its commitment to lower the former and slow down the latter. We expect Powell will point this out in his speech, and let the implications be inferred from his concern over inflation and the Fed’s resolve to get it turned around."
• But BNY Mellon doesn't expect Powell to give explicit rate guidance this week, "because we think the Fed has gotten out of the guidance business" per Powell's July press conference "meeting-by-meeting" comment.
• Powell will "make it clear that the Fed won’t relent on tightening policy until it sees" compelling evidence of inflation moving down - "concentrating on inflation rather than guidance on rates will still get the hawkish message across, and not box Powell into any specific rate path."
• BNY Mellon still sees a 75bp hike in September, and "would be surprised if Powell’s comments steer those expectations further one way or another. To us, the key data releases are more important."