Powell's Jackson Hole Meeting: Dovish or Hawkish? Interest Rate Decisions Will Impact Market Direction
Currently, the market has two completely different expectations for Powell's speech:
Bank of America View: Dovish Remarks, Supporting Rate Cuts
Bank of America believes that Powell's speech may lean towards dovish, paving the way for a rate cut in September. They believe current economic data supports a rate cut, but if Powell sends a dovish signal, it could trigger a decline in global stock markets, leading to a 'Sell the news' market sentiment that will cause a correction in global markets.
Morgan Stanley View: Hawkish Remarks, Tightening Warning
Morgan Stanley, on the other hand, believes Powell will continue to maintain a hawkish stance, especially considering that last week's PPI data showed persistent inflationary pressures in sectors such as services and rent. The rebound in service sector inflation may bring new inflation pressures. Although employment data has declined, it has not reached a level sufficient to change the economic trend, so Powell may choose to 'stay the course'.
Market Reaction: Rate Cut Expectations Will Ignite the Market
From the current perspective, both Bank of America and Morgan Stanley's analyses point to a key point—market reaction. If Powell's speech leans dovish, the market may speculate a rate cut in September, possibly even by 50 basis points, which would stimulate a short-term speculative rise in the market. Particularly for Bitcoin, it briefly broke new highs during last week's optimistic rate expectations from Bessenet, and the current cryptocurrency market is likely to be influenced again by rate cut expectations.
However, a 50 basis point rate cut would have a stronger uplifting effect on the current risk market than a simple rate cut, which may be the direction the market looks forward to more.
My View: More Optimistic Towards Hawkish
From the overall trend of recent data, I personally lean towards Morgan Stanley's analysis. The rebound in service sector inflation is significant, and the current employment data does not show sufficient signs of recession, meaning Powell will undoubtedly keep a close eye on inflation data. Even though the job market has cooled somewhat, it is still far from a recession, making it more likely for Powell to maintain a hawkish stance in the short term.
Whether dovish or hawkish, the market has already begun to 'speculate' on this outcome in advance, and Powell's speech will undoubtedly become a key factor in short-term market volatility.
