Focus on 10 PM tonight! Powell's major speech is coming, and global investors are holding their breath in anticipation.
On August 22, the Jackson Hole Global Central Bank Annual Meeting kicked off on August 21 in Wyoming, USA. Federal Reserve Chairman Powell will deliver a keynote speech at 10 PM Beijing time tonight, and global investors are holding their breath for this moment.
In this speech, Powell may cover topics such as the labor market, inflation situation, the impact of tariffs on the economy, the direction of monetary policy, and the independence of the Federal Reserve. Among these, investors are most concerned with his statements regarding the Fed's future policy path, especially clues about whether there will be a rate cut in September.
The current economic situation in the U.S. is somewhat complex: the labor market shows signs of fatigue, but GDP performance is strong; inflation is relatively manageable for consumers but not for wholesale producers. In this context, Powell's speech is receiving increased attention.
Previously, weak non-farm payroll data in July had caused expectations for a Fed rate cut in September to spike to 100%, but subsequently, PPI inflation exceeded expectations, Fed officials released cautious signals, and the meeting minutes were hawkish, all of which dampened this expectation. According to CME Group's FedWatch tool, the market currently expects a 75% probability of a 25 basis point rate cut in September and a 25% probability of keeping rates unchanged.
The market expects Powell to solidify the interest rate cut expectations in his speech on Friday, which would benefit risk assets and may help reverse the recent downturn in tech stocks. Here are three possible scenarios that could emerge from Powell's speech, along with the potential market reactions for each scenario:
- Scenario 1: Position more hawkish than expected
This is the most concerning outcome—Powell suggests a more conservative interest rate path than the market expects. Currently, investors generally digest the expectation that the Fed will cut rates twice before the end of the year. Bullish investors hope that lower capital costs will drive corporate profit growth, which has historically been the core driver of stock market increases.
Despite a sell-off in U.S. stocks over the past week (especially in AI and chip stocks), market pricing remains close to ideal, just a step away from historical highs. This makes the market extremely sensitive to adjustments in rate cut expectations: if investors realize that the channels for corporate reinvestment, acquisitions, and profit boosts are narrowing, they may reduce positions, triggering a market crash.
- Scenario 2: Position more dovish than expected
This is the ideal scenario—Powell suggests a more accommodative interest rate path than expected. This would inject more momentum into large corporate profit growth and could push the stock market higher, although the likelihood of this scenario occurring is relatively low.
It is worth noting that even if more rate cuts materialize, there may be a rotation within the stock market: as a loose monetary environment narrows the gap for upward revisions in corporate profit expectations, the large tech stocks that previously led the market may face a decline in popularity.
- Scenario 3: Position in line with expectations
This is the most neutral scenario—Powell's statements are consistent with market expectations. Under the current situation, this would confirm a rate cut in September and another before the end of the year.
In this case, the market reaction may be between neutral and negative. Theoretically, if everything proceeds as expected, the stock market should remain stable, but investors may 'sell the news' (selling off after the news is released), after all, this outcome may have already been fully priced in by the market.
