On Friday, the Jackson Hole speech, the market focuses on whether there will be a rate cut next month, with the bigger highlight being the 'monetary policy framework review'. The Federal Reserve assesses its policy framework every five years, and this time it may fundamentally adjust the decision-making logic for the coming years, having an impact far beyond the current term.

One, the real highlights this time

• The theme focuses on 'economic outlook and framework review': external expectations will elaborate on the ideas for a new round of framework adjustments.

• Possible directions for change: phasing out the 'average inflation target (AIT)', rephrasing 'employment gap', re-anchoring the 2% inflation target more firmly, and clarifying the policy response approach in the era of supply shocks.

• Long-term binding force: once the framework is set, subsequent chairs must also act according to this 'game rule', establishing boundaries for future rate cut pace and magnitude.

Two, review and reflection on the 2020 framework

• Two core points: allowing inflation to be temporarily above 2% to compensate for periods of being too low; low unemployment no longer automatically triggers 'preemptive rate hikes'.

• Historical context: long-term low inflation and slow employment recovery after the crisis.

• Consequences and criticisms: the pandemic combined with supply chain turmoil led to soaring inflation, and the framework and 'transitory inflation narrative' prolonged the rate hike response time, becoming a key point of reflection afterward.

Three, how this time may change

• Returning to '2% is 2%': less 'average' design, and more emphasis on timely responses to deviations.

• Acknowledging supply shocks: incorporating energy, geopolitical, and supply chain disruptions into the policy response function, enhancing foresight.

• Redefining the phrase 'maximum employment': avoiding misjudging overheating/cooling by relying solely on the unemployment rate.

• Forward guidance is more flexible: weakening mechanical rules, maintaining maneuverability in a high uncertainty environment.

Four, what it means for the market

• Regarding the interest rate path: the downward space for long-term nominal interest rates is limited, the curve is more 'pragmatic', and the probability of extensive easing is decreasing.

• Regarding the dollar and U.S. Treasuries: a stronger inflation anchor benefits the relative resilience of the dollar, while long-end U.S. Treasuries are more sensitive to 'resurgence of inflation'.

• Regarding U.S. stock styles: premium for earnings certainty and cash flow quality increases, 'high dividend/high free cash flow' and industries with pricing power are favored; purely 'liquidity-driven' valuation expansion becomes more difficult.

• Regarding global assets: risk assets converge in their imagination of the 'policy safety net', and emerging markets need to reduce leverage due to excessive dependence on external liquidity.

Five, Friday's 'listening points'

1. Whether it is clearly stated to abolish AIT and the strength of the new phrasing.

2. How to define 'supply shock' and the thresholds for policy responses.

3. Whether the multi-indicator framework for 'maximum employment' is implemented (participation rate, wage growth, job vacancies, etc.).

4. The connection with the September decision: emphasizing how strong the distinction between 'long-term framework, short-term decision-making' is.

5. How to evaluate the stickiness of inflation and the evolution of housing/service prices.

Six, three scenarios and possible market reactions

• Scenario A: Tough framework + Neutral outlook

——Long-end U.S. Treasuries rise, the dollar is relatively strong, stock indices show divergence, and cash flow stable/inflation-resistant industries are relatively favored.

• Scenario B: Moderate framework + Dovish outlook

——The curve steepens, growth style rebounds, but sustainability depends on subsequent data.

• Scenario C: Ambiguous (postponed to the formal report)

——Increased volatility, heightened data dependence, the market returns to the old path of 'watching inflation and employment in August and September'.

Seven, risks and variables

• Inflation rising again or core services not coming down.

• Structural changes in labor supply and productivity.

• Tail risks from geopolitical and oil price shocks.

• Political cycles disturb policy communication.

Conclusion

The framework is the map, and interest rates are the footsteps. Once the map is updated, the way to walk must change. The key signal on Friday is not about 'whether it hints at a rate cut next month', but rather 'how the Federal Reserve intends to define risk, fulfill its 2% commitment, and make faster and more precise choices in a world of supply shocks over the next five years.'