Powell's Speech To Sound More Like 2022's Than 2021's (1/2)

Chair Powell’s task in his Jackson Hole keynote speech is to reaffirm the recent turn to a meeting-by-meeting, data dependent approach to policy while emphasizing that the Fed intends to keep rates in restrictive territory for a lengthy period of time.

• In this regard it is likely to sound like a bookend to his brief 2022 speech in which he invoked the lessons of the 1970s and 80s to say “we must keep at it until the job is done”, with Powell laying out the “higher for longer” rate landscape for the year ahead. Most analysts expect Powell to deliver a hawkish-on-balance message, and combined with the recent jump in market rates, the bar is fairly high for a hawkish reaction.
• As we entered Jackson Hole in 2022, the question was whether after delivering a 2nd consecutive 75bp hike in July to 2.00-2.25%, Powell and co would guide to a further 75bp in September. This year the Fed comes into Jackson Hole at a very different juncture, with markets pricing in a significant chance that July’s 25bp hike to 5.25-5.50%was the final tightening of the cycle.
• Then, as now, those expecting Powell to deliver an explicit steer on future rate moves are likely to be disappointed. With the Fed coming close to its perceived end of the hiking cycle, we would expect Powell to stay focused on 2022’s hawkish message that “restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy”. This would be a reiteration of the themes of the most recent FOMC minutes and meetings: higher for longer.