A year later, what kind of outcome will Powell's final curtain speech at the global central bank annual meeting bring to the market?
At 10 PM tonight, the eyes of the global capital markets will be focused on the town of Jackson Hole in the United States, as Powell is about to deliver his final speech as chairman at the global central bank annual meeting. This time, his speech will focus on the outlook for the US economy and a review of the monetary policy framework, reflecting on the evolution of the various economic policies he has implemented during his eight years at the helm of the Federal Reserve.
For example, during the pandemic in 2020, he changed the US inflation target to a flexible average inflation targeting framework, allowing US inflation to temporarily exceed 2%. As a result, it spiraled out of control, causing US inflation to soar above 10%, leading to an emergency transition into a rate hike cycle.
Another particularly important speech was in August 2024, also at this global central bank annual meeting, where Powell said the one sentence that global capital markets most wanted to hear: it is time to cut interest rates. After this statement, on September 18, the Federal Reserve cut interest rates as expected and unexpectedly lowered them by 50 basis points, triggering a bull market in global stock markets. Not only did US stocks soar, but our A-shares also experienced a surge after September 24.
The situation this year is also very similar. From January to August, the Federal Reserve did not cut interest rates, completely placing the expectations for a rate cut on the upcoming September meeting. Will Powell replicate last year's clear expectations for a rate cut at this meeting?
I really think the probability is low. Firstly, considering the current economic situation, there are still hidden worries about US inflation. Not only have tariffs not fully transmitted to prices, but inflation in the service industry is also stagnant. According to Powell's consistently cautious approach to the market, it is now overpricing the possibility of an interest rate cut. He may take this opportunity to suppress the market's expectations for a rate cut, reclaiming the initiative from the market and the so-called 'King' and gaining more speaking power.
On the second front, the Federal Reserve is currently facing a great deal of pressure from various parties. Whether it is the Federal Reserve's over-budget renovations or the recent accusations against Fed Governor Cook, the independence of the current Federal Reserve is continuously interfered with by politics. Powell is known for being soft rather than hard; his external label is that the Federal Reserve must maintain its independence, so he is likely to continue to uphold that independence and show some hawkish tendencies.
Next, it is likely that three major data points—the August non-farm payroll data, PPI data, and CPI data—will determine the final interest rate cut expectations. Whether this is good or bad will be revealed at 10 PM tonight!
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