Jackson Hole Central Bank Annual Meeting, Powell's Key Remarks, Why Wall Street Consistently "Sounds the Alarm"

The global financial markets are holding their breath for the Jackson Hole "Global Central Bank Annual Meeting" on Friday, where Federal Reserve Chairman Jerome Powell will deliver a speech that evening.

In recent years, Powell has made several policy statements at this event that have had a significant impact on the markets. Given the current backdrop of heightened expectations for monetary easing, any signals released by Powell during this speech will be particularly crucial.

Although traders believe that a weak labor market has opened the door for Powell to "dove," several major Wall Street banks have come out to "sing a different tune." Both Barclays and Bank of America believe that the current reasons supporting a Fed rate cut are insufficient because the labor market remains resilient, and inflation still carries upward risks due to disruptions from tariff policies.

Considering that there are still a series of data yet to be released before the September meeting, Nomura expects that Powell will not provide a "clear commitment" on Friday, and Bank of America even anticipates that Powell will maintain a hawkish stance, contrary to the market's easing expectations. Morgan Stanley predicts that Powell will continue to emphasize inflation risks in his speech, resisting the market's rate cut expectations.

Barclays: The market is overly confident; the backdrop for rate cuts is entirely different from last year

Barclays analysts Christian Keller, Silvia Ardagna, and others pointed out in their report that the market is overly confident that the Fed will cut rates in September, and Powell's speech on Friday may challenge this view.

The report analyzes that while the September meeting is undoubtedly a suspenseful one, the belief that a rate cut is a foregone conclusion overlooks the significantly different economic backdrop compared to a year ago.

Compared to the same period in 2024, the current policy rate is 100 basis points lower, the core PCE inflation rate is slightly higher and is expected to accelerate to above 3%, while the unemployment rate remains stable; July's retail sales data showed robust performance after upward revisions, indicating that consumer spending remains resilient. Additionally, financial conditions are looser than a year ago.

Therefore, the report concludes that the reasons supporting a rate cut this year are far less compelling than last year based on economic data.

The report also notes that Powell's hawkish remarks following the July meeting do not seem to have been overturned by subsequent economic data. He had already warned that, considering revision factors, the actual pace of job growth might be close to zero, and emphasized that the unemployment rate remains low—this was precisely confirmed by the July employment report.

Barclays expects that attempting to stimulate employment numbers back to previous highs through monetary policy could lead to an overheating labor market and exacerbated inflation.

Bank of America: The labor market remains resilient; Powell has "ample reason" to stay tough

Bank of America analysts Claudio Irigoyen and Antonio Gabriel stated in a report released on the 15th that given that the core inflation rate still hovers above 3% and the labor market remains resilient, the Fed has ample reason to remain on hold at current levels. **

The latest inflation data shows that the core CPI in the U.S. rose by 3.1% year-on-year in July, up from 2.9% in June, with the acceleration of core services inflation being particularly noteworthy. Bank of America believes that although the unexpected weakness in core goods prices temporarily masks some inflationary pressures, companies are likely to gradually pass on tariff costs to consumers.

At the same time, there is currently insufficient evidence to suggest that inflation has peaked. The report forecasts that the core PCE price index may rise to 2.9% this month and will continue to climb in the coming months, persistently deviating from the Federal Reserve's 2% target.

In terms of the labor market, although employment growth has slowed, the improvement in labor supply is the main reason and has not weakened the resilience of household income.

Therefore, against the backdrop of inflation remaining above target and a solid labor market, Bank of America believes that Powell has sufficient reason to maintain a tough stance at the Jackson Hole meeting, in stark contrast to the market's current easing expectations.

Nomura: Inflation Pressures Limit Powell's "Dovish" Stance

Nomura Securities analysts David Seif, Aichi Amemiya, and others released a report on the 15th, predicting that Powell will hint at the possibility of policy easing in his speech on Friday, but the overall stance will remain cautious.

Although Nomura expects the Federal Reserve to cut rates by 25 basis points in September, the report also states that given that there is still a complete round of monthly economic data to be released before the September meeting, Powell is unlikely to reveal the Fed's next steps in advance.

In fact, recent speeches by several Federal Reserve officials also reflect this contradictory mindset, as they show a dovish tendency towards economic data, especially employment data, while remaining vigilant about inflationary risks arising from tariffs and other factors.

In addition to core economic data, two major external factors have also added uncertainty to the market. First is the ongoing impact of tariffs. The August University of Michigan consumer confidence survey showed that respondents' concerns about price increases due to tariffs have intensified, leading to a rise in both short-term and long-term inflation expectations. This indicates that changes in trade policy are directly affecting consumer sentiment and inflation expectations.

Secondly, the political dynamics surrounding the U.S. Bureau of Labor Statistics (BLS) have also drawn attention. The report points out that after the significant downward revision of the July non-farm report, Trump fired the former director and nominated E.J. Antoni as the new director.

The report notes that this appointment, seen as partisan, has raised concerns about the integrity of future economic data. Although the BLS director does not directly participate in data collection, they may influence the estimation methods for employment and inflation.

In addition to hints about the policy interest rate path, the market also expects Powell to provide more clues regarding the ongoing review of the Federal Reserve's policy framework during this speech.

Nomura expects that this year's review may largely reverse the framework reforms of 2019 to more evenly reflect the current risks of inflation and interest rates.

Specifically, the FOMC may abandon the "flexible average inflation targeting" and reacknowledge that a tight labor market is one of the sources of inflationary pressure. Furthermore, the review may explicitly state that monetary policy needs to take into account the inflationary pressures caused by persistent supply shocks