Jackson Hole has been heavily discussed since the Fed’s supposed dovish pivot last month when it adopted a more data-dependent stance. While policymakers have pushed back against the idea of a pivot, markets have continued to price in a slower path of tightening.
Chair Jerome Powell could use his platform next week to join the chorus of policymakers highlighting the need for ongoing aggressive tightening, continuing the push back against the market narrative. But will he do that? The CPI data for July may allow for a softer approach, although it could be argued to be counterproductive given how high inflation still is and how much work there remains to do.
As ever with these events, it won’t take much to excite investors. Any hint at all that the central bank could be tempted to take its foot off the break, that inflation has peaked and will fall back towards target could be enough to fuel more optimism in the markets. The question is what happens if there is no pivot? Will investors be as open to a hawkish Powell as they will a dovish one?
Powell will reiterate the message that the economy still has forward momentum and that they are nearing the end of tightening. He may also try to drive the point that after they are done tightening, the Fed will keep rates steady for a while until inflation has clearly returned closer to target.
A wrath of economic data will be released, with the two big ones being the flash PMI readings and the second look at Q2 GDP. Friday will be busy with the Fed’s preferred inflation gauge, and personal income data for July that is expected to remain steady while spending slows.
Election season continues with US primary elections in Florida and New York.