Powell Unlikely to Signal 50bp Rate Cut at Jackson Hole Next Week: Piper Sandler
Federal Reserve Chair Jerome Powell is expected to refrain from indicating a substantial 50 basis point (bp) rate cut at the upcoming Jackson Hole Economic Symposium, according to strategists at Piper Sandler. In a note released on Thursday, the investment bank outlined its expectations for Powell’s potential statements and the likely market impact of his speech.
Piper Sandler strategists suggest that Powell might update the Federal Open Market Committee’s (FOMC) recent statement to reflect a growing confidence that inflation is moving closer to the Fed’s target of 2%. This update could be as simple as including a phrase indicating that the Committee is increasingly assured that inflationary pressures are moderating. However, the bank does not anticipate Powell making a more dramatic shift in tone. A more assertive statement like “it may be appropriate to reduce the target at an upcoming meeting” would be considered bolder but remains unlikely at this juncture.
The firm believes Powell may hold back from signaling a substantial rate cut, especially given that additional economic data will be available before the September FOMC meeting. This caution is likely due to the Fed’s desire to remain responsive to evolving economic conditions rather than preemptively committing to a significant policy change.
Piper Sandler emphasizes that the potential scenarios outlined are not expected to be highly impactful. The median and mode projections from the June dot plots already suggest that the Fed might implement one to two rate cuts by the end of the year, with only three meetings remaining. Therefore, a significant deviation from this anticipated path is not expected. Strategists predict that Powell will likely avoid suggesting a rapid move toward a more neutral rate environment. Instead, comments reflecting current thinking, such as “That’s not something we’re thinking about right now,” are seen as more probable.
Historically, while speeches at the Jackson Hole symposium can sometimes lead to notable market reactions, these occurrences have been rare. Piper Sandler points out that out of 22 speeches delivered since 2000, only two resulted in significant changes in the 10-year U.S. Treasury yield. Similarly, only two instances saw outsized returns in the S&P 500 on Jackson Hole days.
Overall, the bank notes that substantial market reactions following the symposium are atypical. Fed Chairs, including Powell, often avoid unveiling major policy shifts at this event, and expectations of dramatic announcements may be overblown. In summary, Piper Sandler’s analysis suggests that Powell is unlikely to deliver any major surprises next week, with the event likely to pass with limited market impact.
