The 2025 Jackson Hole Economic Policy Symposium will focus on "Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy." The symposium is scheduled for August 21-23. It's an annual event hosted by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyoming, bringing together central bankers, policymakers, economists, and academics to discuss important economic issues and long-term policy challenges.

Fed Chair Jerome Powell will speak at 10 a.m. on Friday, August 22. His speech is titled "Economic Outlook and Framework Review.” So he will likely discuss the current controversies about the economy, the labor market, inflation, and how the Fed should respond to them. Will he turn more dovish in reaction to July's weak jobs report? Or will he remain hawkish by reiterating that the Fed is in no rush to cut the federal funds rate because inflation remains about a percentage point above the Fed's 2.0% y/y inflation target?

Odds are that he will be more of an owl—waiting and watching—than either a hawk or a dove. In other words, he'll say that a Fed rate cut is possible at the September meeting, but the Fed's decisions are data-dependent. Before the September 16-17 meeting of the FOMC, July's PCED inflation rate will be released on August 29. So will August's CPI on September 11. In addition, August's employment report will come out on September 5. Our hunches are that inflation will be hotter than expected and payrolls will be better than expected. If so, then the FOMC should vote to pass on a rate cut with perhaps three dissenters. This is clearly a contrarian view currently.

August's stock market rally has been driven by a better-than-expected Q2 earnings reporting season. At the start of the season, industry analysts expected a 3.5% y/y increase in S&P 500 earnings per share (chart). So far, it is tracking at 10.6%. A similar upside surprise occurred during Q1's earnings reporting season.

S&P 500 forward earnings per share (the time-weighted average of analysts’ consensus estimates for this year and next) rose to yet another record high of $289.86 during the week of August 14 (chart).

Mounting expectations of a Fed rate cut in September this past week triggered a broadening of the bull market, with a rotation from LargeCaps to SmallCaps and MidCaps (a.k.a. SMidCaps) and from Growth into Value. We certainly welcome such a broadening and recommend focusing on the S&P 500’s SMidCap Financials, Industrials, and Information Technology sectors.

Here is the chart showing the week-to-date performance of the various major market indexes:

Here is a chart showing the week-to-date performances of the S&P 1500 sectors:

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