Will Fed Chair Powell Sink Stocks with Jackson Hole Speech?
Will Fed Chair Powell Sink Stocks with Jackson Hole Speech?
By:Ilya Spivak
Traders may rush for the exits if Fed Chair Powell deflates rate cut mythmaking
- Stock markets badly want a dovish signal at the Jackson Hole Symposium
- Rosy PMI data is met with jeers on Wall Street as rate cut hopes are dented
- Fed Chair Powell may short-circuit risk appetite absent stimulus embrace
Stocks fell for a fifth day straight on Wall Street as traders prepared for what may be an explosive speech from Federal Reserve Chair Jerome Powell. He is due to appear at the Jackson Hole Symposium, the US central bank’s annual gathering of monetary policy bigwigs in Wyoming.
This exercise has long served as a vehicle for the Fed Chair – Powell and those before him – to explain to the markets the overall framework and thought process that officials will adopt to judge how to steer policy in the coming year. It is a kind of lens-tuning operation where the markets glean how to read the economic tea leaves alongside officials.
The markets want Fed Chair Powell to “green light” rate cuts
The speech has taken on particular significance this year as the markets wait with bated breath for the Fed to resume the interest rate cut cycle that it launched last year. The central bank delivered 100 basis points (bps) in cuts in the second half of 2024 and has been on pause since.
This dithering has reflected Powell and company’s concern about the impact of the Trump administration’s tariff regime. They’re worried that the new duties will fuel inflation and in so doing crimp economic activity, putting the Fed’s dual objectives of maximum employment alongside price stability on a collision course.
With that in mind, the rate-setting Federal Open Market Committee has opted for extended wait-and-see mode while still moderate reflation and a benign unemployment rate afford it. Nevertheless, policymakers have steadily projected since December last year that 2025 will bring 50bps in rate cuts.
Stocks may drop as the dollar gains if Powell resists dovish speculation
With just three rate decisions left this year, the calendar looks set to force their hand. Benchmark Fed Funds futures put the probability of a cut in September at a convincing 73.3%. A total of 42bps has been discounted through year-end, implying the likelihood of a second cut in either October or December is a solid 68%.
All the same, traders have balked at anything that might delay stimulus or limit its scope. The bellwether S&P 500 has been unable to find fuel for rally in over a week, held amid signs that wholesalers have started passing on tariff costs to retailers, to the chagrin of displeased consumers.
A dose of better-than-expected purchasing managers index (PMI) figures might have been celebrated for their positive implications for US growth, but markets were dismayed by the thought that this could hold back easing. Treasury bonds fell with stocks as yields rose alongside the US dollar in the data’s wake.
More of the same may be ahead if Powell’s address appears to lack the sense of urgency that markets are yearning for. They’ve priced in 72bps in cuts for 2026, while the Fed has owned up to just 25bps in its forecasts. Frustrated traders may rush for the exits as risk appetite evaporates if the central bank chief resists pivoting their way.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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