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Powell Sticks to the Script at Jackson Hole

The TLDR from Jay Powell’s Jackson Hole speech: not much. Despite his highly anticipated comments, we don’t really have any more insight into the future trajectory of rates than we did a couple hours ago.

The opening statement is usually where we get the biggest headlines. Today’s version included a reiteration of last year’s focus – to bring inflation down to the Fed’s 2% goal – and they remain steadfast in that commitment.

One of the only “surprises” – if we want to call it that – was a couple comments around the need to see a softening labor market for inflation to reach the Fed’s goal. This was a bit more specific than prior statements.

Some quick initial thoughts for more context:

  • Powell’s comments were generally neutral. Inflation has fallen from its peak, which is a “welcoming” development, but it’s still too high. Nothing new.
  • He noted incoming data is encouraging but reiterated it’s too early to declare victory. The job isn’t done yet, but he doubled down on being data-dependent, leaving the door open for a pause in further rate hikes if the data warrants it. Again, no surprise.
  • Given the recent uptick in volatility – notably in the Treasury market – Jay did exactly what he needed to do. He stuck to the script.

Markets don’t really know how to process Powell’s commentary either.

  • Stocks initially moved higher, in part driven by an expected rebound from yesterday’s 1.5-2% decline. The SPX and NDX gave back those gains – falling >1% from their intraday high – and now appear to be rebounding again.
  • BTC and crypto has largely tracked the equity market reaction.
  • The DXY initially fell, then rallied, and is now rolling over again.
  • Treasury yields are slightly higher across the curve, but nothing too substantial (at least compared to the reaction some anticipated).
  • Odds of another rate hike by year-end are slightly higher (~60%), but not a substantial change from yesterday.
  • Inflation expectations are unchanged.

Markets may start to move more aggressively throughout the day as Powell’s commentary is digested, but overall this wasn’t the market-moving event many hyped it up to be.

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