The financial market has entered a state of 'silent moment,' with reduced volatility in the dollar, gold, and other markets—waiting for a 'confirmation signal' (Powell's speech), volatility is about to erupt.
This time at Jackson Hole, what investors are waiting for is not an answer, not whether to cut interest rates, but an attitude.
First, the atmosphere is more important than the words.
What the market is really concerned about is not the 'word-for-word' but the overall atmosphere. Just like last year's opening statement 'interest rates need to be adjusted,' the market sentiment was instantly ignited. The financial market particularly relies on 'atmosphere'—Powell's tone, demeanor, and even whether there is applause from the audience can become the basis for traders' decisions. If he remains 'sullen' throughout, the market may be dominated by this wave of disappointment. The atmosphere on-site cannot be felt from the media reports; it's best to watch the live broadcast on Friday evening.
Second, 'risk balance' is the key phrase.
If the term 'risk balance' comes up, it may be seen as 'positive' by the market. The Federal Reserve has always talked about its 'dual mandate': to keep inflation in check and to ensure employment. If Powell starts to emphasize 'risk balance,' it means: there is no need to suppress inflation further; instead, more consideration should be given to the economy and employment. This often precedes interest rate cuts.
Third, the art of ambiguity.
He cannot provide a 'roadmap.' The Federal Reserve has never wanted to be 'kidnapped' by the market. If Powell is too clear, the market will immediately bet on a larger scale of easing, which would put him in a passive position. Therefore, he will certainly leave some ambiguous space. Ambiguity is his only safe exit.
This time Powell will not be as straightforward as last year, not providing answers but leaving enough hints.
So now the answer has emerged—Powell is currently in a dilemma; he cannot be too dovish (worried about a resurgence of inflation) nor too hawkish (worried about a market crash and economic downturn). This time, the market is not waiting for an 'answer,' but for a performance. Every glance and pause from Powell will become a reason for traders to open positions.
