Stocks and Bonds are Little Moved by Powell’s Jackson Hole Speech
Aug 25, 2023
Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Economic Policy Symposium was one of the top-billed macro events this week. However, traders expecting significant volatility around the event may be walking away disappointed: All four major U.S. equity indexes have moved between gains and losses, while U.S. Treasury bonds have sold off slightly.
In a sense, Fed Chair Powell’s speech offered little new information. Outside of his firm commitment to keeping the Fed’s inflation target steady at 2% over the medium-term—chiming in on a debate currently making its way through macro circles about shifting the inflation target to 3%—everything Powell saidFriday was a regurgitation of his comments dating back to the June Federal Open Market Committee (FOMC )meeting.
Here are the key comments:
The reaction to Powell’s speech has been mixed, whereby stocks and bonds across the curve initially rallied but have since fallen back. Now, markets are mostly unchanged: the S&P 500 is down by 0.21% on the day; the U.S. Treasury 10-year yield is higher by 5 basis points (bps )when this note was written.
Thus far, the mixed reaction to the report has not done much to shift Fed rate hike expectations in the near-term: Yesterday, markets were pricing in a 19% chance of a 25-bps rate hike in September; today, there is a 16% chance, according to Fed funds futures. Odds of a November rate hike have increased marginally, from 49.3% to 50.3%.
The Fed is data dependent—period, end of story. There are numerous data releases before the September FOMC meeting, including the August U.S. consumer price index and the August U.S. nonfarm payrolls report. We’ll see numerous weekly jobless claims figures, and the August U.S. Institute for Supply Management (ISM) surveys as well. If the data continue to run hot (the Atlanta Fed GDPNow growth tracker for 3Q’23 is a searing hot +5.9% annualized in real terms), traders can’t dismiss another rate hike in September, but more likely November.
Regardless, none of this is new information, because Powell didn’t tell market participants anything that they didn’t already know—as one of us expected.
Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx
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