Federal Reserve Chairman Jerome Powell will deliver a speech at the Kansas City Fed's annual meeting in Jackson Hole at 10:00 PM Beijing time on August 22. This speech is highly anticipated by global financial markets.
The current U.S. economy is at a critical turning point, with tariff policies increasing inflationary pressures, while the labor market is showing signs of cooling. The complex economic situation adds uncertainty to Powell's speech.
Current Economic Situation: The Interplay of Inflation and Employment
U.S. economic data shows that tariff policies have had a significant impact on inflation. Recent core inflation indicators have continued to rise, far exceeding the Fed's 2% target level. Production costs have surged due to tariffs, and companies have passed some of these costs onto consumers, further exacerbating upward pressure on prices. Meanwhile, the labor market has raised red flags, with the number of new jobs falling short of expectations and the unemployment rate on the rise, particularly in manufacturing and trade-related industries, creating a severe employment situation. This divergence between inflation and employment places the Fed's policy-making in a dilemma.
Market Expectations: Increased Bets on Rate Cuts
Wall Street traders have turned their attention to the September Federal Reserve interest rate meeting, with markets generally expecting the Fed to cut rates by 25 basis points. The CME Group's FedWatch tool indicates that the probability of a 25 basis point cut in September has exceeded 70%. The increasing expectation for rate cuts reflects market concerns about current economic downside risks and hopes for the Fed to take action to stabilize the economy. The bond market's yield curve also reflects this expectation, with long-term bond yields continuing to decline, suggesting market pessimism about future economic growth prospects.
Political Pressure: The Subtle Relationship between the White House and the Federal Reserve
U.S. President Trump has recently renewed his call for the Federal Reserve to cut rates, accusing the Fed's policies of hindering economic growth. Since taking office, Trump has repeatedly expressed dissatisfaction with the Fed's monetary policy, and this speech comes at a time when he is considering nominations for the next Fed chairman, with Powell's term set to expire in May next year, adding more political significance to this speech. The subtle power struggle between the White House and the Fed may influence Powell's wording and policy hints, making the balance between economic policy and political pressure a major challenge for Powell.
Speech Highlights: Subtle Clues of Policy Direction
Powell's speech will focus on the current economic situation, inflation outlook, and monetary policy. The market expects to capture policy signals for the September interest rate meeting from his remarks, particularly whether he will hint at the possibility of rate cuts. Given Powell's consistently cautious speaking style, he may not provide explicit policy commitments but rather emphasize data-driven decision-making, leaving room for future policy adjustments. Assessments of inflation and the labor market will be critical; if Powell expresses concerns about downside risks to the economy, it may imply an increased likelihood of future rate cuts; conversely, if he emphasizes inflationary pressures, it may suggest maintaining stable interest rates.
Market Impact: Potential Risks of Increased Volatility
Powell's speech may trigger significant volatility in financial markets. If the speech is dovish, hinting at the possibility of rate cuts, the stock market is likely to rise further, bond yields will continue to decline, and the dollar may come under pressure and depreciate. Conversely, if Powell maintains a hawkish stance, expectations for rate cuts will cool, the stock market may correct, bond yields may rise, and the dollar could strengthen. Given the current high market expectations for rate cuts, if Powell's remarks do not meet market expectations, volatility may intensify.
Federal Reserve Chairman Powell's speech at the Jackson Hole meeting will provide important policy guidance for global financial markets. Amid the contradictions of inflation and employment, and the intertwining of market expectations and political pressures, how Powell balances various interests and conveys clear policy signals becomes the focus of market attention. This speech will not only affect short-term market trends but also set the tone for the Fed's future monetary policy direction.
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