The Federal Reserve has serious internal divisions. If Powell wants to "turn dovish," then "Jackson Hole" is the best opportunity

As divisions within the Federal Reserve intensify, the market expects Powell to send clear signals at the Jackson Hole Global Central Bank Conference.

According to news from the Chase Trading Desk, Bank of America analysts Stephen Juneau and Shruti Mishra stated in their latest research report that despite significant internal divisions within the Federal Reserve, the market should keep its focus firmly on Chairman Powell.

The report emphasizes that Powell's policy signals carry far more weight than those of his colleagues, and the Jackson Hole Central Bank Conference has historically been his preferred platform for releasing significant policy shift signals. If the Fed's policy focus has indeed shifted from inflation to a greater emphasis on employment, then this meeting will be the most likely opportunity to announce this change to the market.

Public information shows that this year's Jackson Hole Central Bank Conference will be held from August 21 to 23.

Clear divisions between hawks and doves, policy outlook increasingly unclear

After the release of the July employment report, the Federal Reserve ended its quiet period, and officials began to speak out intensively. According to Bank of America statistics, four officials—Kashkari, Collins, Cook, and Daly—spoke on Wednesday. In the coming week, more officials, including Musalem and Barkin, are expected to express their opinions.

The report analyzes that two distinct camps have formed within the Federal Reserve. The dovish camp, represented by New York Fed President Williams and Richmond Fed President Hammack, believes that the labor market remains resilient and is more concerned about inflation issues.

On the other hand, the hawkish camp, including Minneapolis Fed President Kashkari, San Francisco Fed President Daly, and governors Waller and Bowman, is more focused on the downside risks to economic activity and signs of a slowdown in the labor market, believing there is reason to cut interest rates in the short term.

The core of the disagreement lies in differing assessments of the current economic situation.

Powell's influence remains dominant, market awaits Jackson Hole Conference

Despite the clear divisions within the Federal Reserve, Bank of America still emphasizes that Powell's communication holds overwhelming weight. Although Powell's term is nearing its end, his influence on the committee remains significant, as evidenced by the recent 9:2 voting outcome.

Therefore, the report points out that Powell's annual speech at the Jackson Hole Central Bank Conference will be crucial. This forum has historically been used by Federal Reserve chairs to announce significant adjustments to policy frameworks. For example, Powell expressed his strong stance against inflation in his August 2022 speech, marking a "Volcker moment" and setting the tone for subsequent aggressive rate hikes.

The report adds that if the Fed's policy focus truly shifts from combating inflation to a greater emphasis on its mission of full employment, the Jackson Hole Conference "is likely to become the forum for announcing this change."

Risk warning and disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at one's own risk