Deutsche: Powell Could Skew Comments In Hawkish Direction

Deutsche sees the Jackson Hole symposium arriving at a "critical juncture for monetary policy" - they "hope/expect" participants will address: "framing the Fed's reaction function; the role of labor supply constraints in achieving its dual mandate; the case for responding to supply-driven inflation; and risk management considerations in a high-inflation environment."

• Powell will re-state the Fed’s “unconditional commitment” to bringing inflation back to target, "including that the June SEP – which shows a higher terminal rate than the market -- remains a decent guide for policy and that officials anticipate holding policy at a restrictive stance for some time.
• "We also expect Powell to emphasize that moving from 75bp to 50bp in no way signals the Fed’s inflation fight is over, and that the Fed could well still deliver a sequence of 50bp increases at coming meetings if the incoming data dictate it. Having incorrectly taken his July comments as dovish, the Chair is likely to skew his comments in a hawkish direction in an effort to ensure the Fed’s inflation fighting credentials are not questioned again."
• Powell should likely reiterate the Fed’s hopes around achieving a soft landing in the labor market by reducing labor demand with less movement in the unemployment rate." though Deutsche adds "while a soft landing is plausible, it remains unlikely in our view".
• "More interesting will be if Powell discusses conditions under which the Fed should break from the traditional reaction of “looking through” supply shocks and actually respond to higher inflation, irrespective of its causes...Powell could note that a sequence of supply shocks could threaten an unanchoring of inflation expectations which could ultimately make inflation more persistent."
• "It will be important to see whether Powell adopts this risk management approach [which "argue in favor of risking being too hawkish"] espoused by some of his hawkish-leaning colleagues."