Jerome Powell, Chairman of the Federal Reserve System (Fed), said that they are prepared to raise rates further if appropriate in his opening remarks at the annual Jackson Hole Economic Symposium. 

Key takeaways from Jerome Powell’s speech at the Jackson Hole Symposium

“We intend to hold rates at restrictive level until confident inflation is moving sustainably down to 2%.”

“Fed will proceed carefully when deciding to hike again or hold steady.”

“Economic uncertainty calls for agile monetary policy-making.”

“Fed will decide next rate moves based on data.”

“Fed is attentive to signs the economy not cooling as expected.”

“Inflation remains too high, the process of bringing down inflation still has a long way to go, even with more favorable recent readings.”

“Two months of good data are only the beginning of what we need to build confidence on inflation path.”

“There is substantial further ground to cover to get back to price stability.”

“Need sustained progress on goods inflation.”

“Slowing rents point to slowdown in housing inflation, will continue to watch.”

“Need some further progress on nonhousing services inflation.”

“Policy is restrictive but Fed can’t be certain what neutral rate level is.”

“Fed will not change 2% inflation target.

 “Fed is mindful monetary policy faces risks on both sides.”

“Above trend growth could warrant more Fed rate rises.”

“Getting inflation back to 2% likely requires below trend growth.”

“Lowering inflation also likely to require softer labor markets.”

“Signs job market not cooling could also warrant more Fed action.”

“Seeing evidence inflation is becoming more responsive to labor markets.”

“July PCE seen at 3.3%, core at 4.3%.”

Market reaction

The US Dollar Index fell sharply with the initial reaction but quickly erased its losses to turn flat on the day at around 104.00 during Powell’s speech.

US Dollar price today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Canadian Dollar.

USD   -0.08% -0.14% 0.18% -0.06% -0.02% 0.03% -0.11%
EUR 0.08%   -0.06% 0.26% 0.00% 0.06% 0.11% 0.00%
GBP 0.14% 0.06%   0.32% 0.06% 0.12% 0.17% 0.06%
CAD -0.14% -0.22% -0.32%   -0.17% -0.15% -0.15% -0.25%
AUD 0.01% -0.09% -0.14% 0.17%   -0.04% 0.04% -0.07%
JPY -0.02% -0.10% -0.17% 0.15% -0.09%   0.01% -0.11%
NZD 0.05% -0.11% -0.17% 0.15% -0.02% 0.00%   -0.08%
CHF 0.08% 0.00% -0.06% 0.26% 0.07% 0.11% 0.10%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

This section below was published as a preview of FOMC Chairman Jerome Powell’s speech at the annual Jackson Hole Symposium.

  • Fed Chairman Jerome Powell will deliver a speech on the US economic outlook at the Jackson Hole Symposium.
  • Powell’s comments on monetary policy and interest rate path will be scrutinized by markets.
  • US Dollar could show significant reaction to Powell’s speech on the last trading day of the week.

Jerome Powell, Chairman of the Federal Reserve System (Fed), will deliver opening remarks at the annual Jackson Hole Economic Symposium on Friday, August 25. Powell’s speech – titled “Economic Outlook” – is expected to offer important clues on the Fed’s next policy step and ramp up market volatility heading into the weekend.

Following the Fed decision to hike the policy rate by 25 basis points (bps) to the range of 5.25-5.5% at the July policy meeting, Powell said in the post-meeting press conference that they have not made any decisions about any future meeting and reiterated the data-dependent approach. “We believe monetary policy is restrictive,” Powell told reporters and caused investors to refrain from pricing in another rate increase in September.

Since the July meeting, however, macroeconomic data releases from the US fed into expectations that the Fed could still opt for one more rate hike before the end of the year. The real Gross Domestic Product (GDP) of the US expanded at an annualized rate of 2.4% in the second quarter, compared to the market expectation of 1.8%, while the annual Consumer Price Index (CPI) inflation rose to 3.2% in July from 3% in June. Although Nonfarm Payrolls rose less than 200,000 in June and July, strong wage inflation readings and the historically low Unemployment Rate of 3.5% reaffirmed that conditions in the labor market remain tight.

According to the CME Group FedWatch Tool, investors see a more than 40% probability of the Fed lifting the interest rate one more time by 25 bps before the end of the year. The market positioning suggests that the US Dollar (USD) faces a two-way risk heading into the Jackson Hole event.

In an interview with Yahoo Finance on the sidelines of the Jackson Hole Symposiu on Thursday, Boston Federal Reserve President Susan Collins said that the may be at a place where the Fed can hold the policy rate steady. Similarly, “right now I think that we’ve probably done enough and with monetary policy in a restrictive stance” Federal Reserve Bank of Philadelphia President Patrick Harker told CNBC.

When is Powell speech at Jackson Hole and how could it affect the USD?

Fed Chairman Jerome Powell is scheduled to deliver a keynote speech titled “Economic Outlook” on the second day of the annual Jackson Hole Symposium. Powell’s speech is scheduled to start at 14:05 GMT. 

In case Powell leaves the door open for one more rate hike, citing sticky core inflation and tight labor market, the US Dollar could start gathering strength against its rivals with the initial reaction. On the other hand, Powell could emphasize the data-dependency and adopt a more cautious tone regarding the growth outlook. Investors are likely to see that as a dovish sign given Harker and Collins’ comments from the day before, triggering a USD selloff.

Economists at Deutsche Bank don’t expect Powell to comment on the near-term policy outlook and explain:

“The overall title this year is “Structural Shifts in the Global Economy”, and Chair Powell’s speech on Friday is simply given the heading “Economic Outlook”. Our US economists don’t expect Powell to send strong signals about the near-term policy path. However, recent years have seen Powell deliver some important longer-term policy messages. In particular, last year saw him deliver a fairly short and direct message on the importance of price stability, which left little doubt as to the Fed’s resolve to return inflation to target.”

It’s worth mentioning that experts have already started to forecast Fed rate cuts as early as the second quarter of 2024. A recently conducted Reuters poll showed that a majority 80% of 110 economists do not anticipate any further interest rate hikes by the Fed this year. Moreover, a majority of the respondents expect the Fed to cut interest rates at least once next year, by the end of the second quarter.

Even if Powell doesn’t offer any clues regarding the next interest rate step, he could push back against the rate cut expectations in 2024. In that scenario, the USD could regather strength even if it weakens against its rivals with the initial reaction.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

This article was originally published by the original article here.