"Falk or Dove?" Will Fed's Powell Become a 'Maedulgi' at Jackson Hole?

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), and his wife, Elisa Leonard, are taking a walk in the nearby Grand Teton National Park ahead of the economic symposium "Jackson Hole Meeting" held on the 25th (local time) in Jackson Hole, Wyoming, USA.
[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Hawk or dove? The highlight of the economic symposium "Jackson Hole Meeting," which opened on the 25th (local time) in Jackson Hole, Wyoming, USA, is the speech by Jerome Powell, Chairman of the Federal Reserve (Fed), scheduled for the second day. This is because it is an opportunity to read the future direction of monetary policy amid soaring inflation and recession concerns.

A year ago, Powell, who embarrassed himself repeatedly by misjudging inflation as "transitory" at this very event, is now expected to deliver an ambiguous "hawk-dove (hawk + dove)" message to avoid repeating the same mistake.

◇All Eyes on Powell's Words

The market appears eager to find hints about the economic outlook and future monetary policy through Powell's speech on the morning of the 26th. Given the situation where inflation has surged to a 40-year high, accompanied by high-intensity tightening and concerns about growth slowdown, Powell's words inevitably carry great weight.

At this event, Powell is expected to reaffirm his commitment to further tightening to curb inflation. Economic media CNBC predicted, "He will emphasize that all efforts will be poured into raising interest rates to control inflation," and "He may deliver a hawkish message indicating that high interest rates will be maintained even after the rate hike cycle ends."

However, many analysts believe that Powell will not provide meaningful clues about the size of the September rate hike, which investors are most curious about. It is expected that he will merely repeat the fundamental stance of "moving based on data." Additionally, by mentioning both the determination to curb inflation and the possibility of adjusting the pace, he may position himself as neither a hawk nor a dove, but a "hawk-dove."

Nomura Securities forecasted, "It is highly likely that Powell will not clearly mention the September Federal Open Market Committee (FOMC) meeting, which is less than a month away." Alan Ruskin, Chief Strategist at Deutsche Bank, also said, "Based on last year's Jackson Hole Meeting experience, Powell will be cautious about making the same mistake twice." At last year's Jackson Hole Meeting, held virtually, Powell continued to claim that "inflation is transitory," which ultimately proved to be a misjudgment.

However, such cautious remarks may be interpreted by the market as dovish messages. The US economic magazine Barron's reported, "There are four reasons why Powell's Jackson Hole remarks may sound more dovish," adding, "Given his emphasis on relying on data, it is unlikely that this speech will surprise the market with a significant policy shift."

◇Market Bets on Hawkishness

Currently, the market is leaning toward bets on a "third consecutive giant step (0.75 percentage point hike)" following a series of hawkish remarks by Fed officials. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market currently reflects over a 60% probability that the Fed will raise rates by 0.75 percentage points in September.

On this day, James Bullard, President of the Federal Reserve Bank of St. Louis, emphasized additional tightening, saying, "The Fed must show the market that it is serious about tackling inflation." Raphael Bostic, President of the Atlanta Fed, said, "It is still too early to say that inflation has peaked," and mentioned that a 0.75 percentage point hike in September is possible depending on indicators. Esther George, President of the Kansas City Fed, emphasized that interest rates should be maintained at around 4% for a considerable period after rising to that level.

The New York Times (NYT) reported, "The Fed is tasked with the delicate balancing act of slowing the economy just enough to curb inflation while avoiding an unnecessary recession." Bloomberg News evaluated, "Ultimately, the direction of future economic indicators will be more important than the Jackson Hole Meeting itself."

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