Investing.com – As markets looked ahead to the widely-anticipated speech from Federal Reserve (Fed) chair Janet Yellen at the Jackson Hole Economic Symposium for some clarity as to the timing for when the U.S. central bank could raise interest rates, some experts felt that traders would be disappointed on the lack of details.
After a string of hawkish remarks over the last two weeks from various Fed officials, markets were set to gauge Yellen’s own stance at the helm of the U.S. central bank
Yet some analysts suggested that Yellen would be wary to commit to a specific timeline and cited five reasons why the Fed chief was apt to avoid specifics, simply leaving the door open to a rate hike in September and reiterating that monetary policy would depend on the data.
1. The topic strays from near-term concerns
The speech, scheduled for 14:00GMT, or 10:00AM ET, on Friday, is titled “The Federal Reserve's Monetary Policy Toolkit”.
“We do not expect much insight about the timing of the next Fed hike from Yellen’s speech,” Bank of America Merrill Lynch economists said in a preview note to clients, explaining that the Fed chief was likely to stick to the topic and focus more on the neutral rate of interest, dubbed R*.
“The market is hoping that she's going to give us clarification, not only on long-term monetary policies, but also some clarity on current monetary policy,” JP Morgan Asset Management managing director Priscilla Hancock explained in a CNBC television interview.
“It's likely that the market is going to be disappointed,” Hancock warned, recommending that it “would be wise not to expect too much from Janet going into Friday."
2. Too much can happen in a month
Moody’s Analytics also downplayed the possibility of interest rate hints from the speech.
"There is roughly a month between the conference and the FOMC meeting, which is an eternity for the Fed, as a lot can happen," they said.
3. Jobs report could sway the tide
Many analysts felt the data-dependent Fed would take its cue on rates from the August employment report that will not be released until after Yellen’s speech on September 2.
“Another firm report for August will increase FOMC members’ confidence further ahead of next month’s meeting,” RBS said.
“Another solid employment report would go a long way in building the case for a September rate hike,” BMO Capital Markets agreed.
“The September payroll number is likely to be more important than the Jackson Hole speech,” Deutsche Bank affirmed.
4. Fed is focused on inflation
Morgan Stanley, however, argued that “inflation holds the key to further Fed rate hikes.”
They pointed out that the core PCE (personal consumption expenditures) inflation was at 1.6% in June and forecast July’s data to come out at 1.5%, dropping further from the Fed’s target of 2% and removing pressure to hike rates.
This data point was also scheduled for after Yellen’s remarks on August 29.
5. Credibility at stake
Back in December, Fed officials had forecast that the central bank would tighten four times in 2016.
Some Fed officials constantly criticized the markets, insisting that rate hike increases were too pessimistic, only to be proven wrong by a dismal May jobs report and concern over the impact of the U.K.’s surprise decision to leave the European Union.
"Being on constant Fed Watch has become so exhausting," The Lindsey Group analyst Peter Boockvar wrote.
"We've been led in so many different directions only to be spun around again that until I see exactly what they do, I'm losing patience in listening to what they say," he added.
A growing voice among analysts and traders follows Boockvar’s thinking suggesting that the Fed is losing credibility.
Barclays economist Michael Gapen wrote in a preview to the speech that “(investors) question whether (Yellen) will ever see data that will justify a rate hike.”
“I think she herself has a credibility problem with markets,” Gapen concluded.
In this light, the pressure may be on Yellen to avoid making a commitment on rate hike timing and then find herself once again in the position of having to backstep.
Markets accept the possibility of one rate hike this year
As markets geared up for Yellen’s speech on Friday, Fed fund futures priced in the possibility of a rate hike for the September meeting at 27%, according to Investing.com’s Fed Rate Monitor Tool.
Odds rose to 31.5% for November and only passed the 50% threshold for the December decision with the chance priced at 54.4%.
Meanwhile, the dollar was largely unchanged with investors unwilling to make large bets before Yellen's speech The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, slipped 0.07% to 94.61 by 11:23AM GMT, or 7:23AM ET, while gold for December delivery on the Comex division of the New York Mercantile Exchange gained 0.40%, or $5.30, to $1,329.90.
U.S. futures traded flat as traders showed caution ahead of the event. At 11:25AM GMT, or 7:25AM ET, the blue-chip Dow futures slipped 4 points, or 0.03%, the S&P 500 futures inched down1 point, or 0.03%, while the tech-heavy Nasdaq 100 futures dropped 3 points, or 0.07%.