Every Tuesday afternoon we publish a collection of topics and give our expert opinion about the Equity Markets.

“The time has come for policy to adjust.” These few words spoken by US Fed Chair Jerome Powell last week at Jackson Hole put a rocket under financial markets eager for monetary policy relief. The first-rate cut is 100% priced in for September 17-18 when the Fed next meets and the question is now on the quantum of the cut. ABSI this week will review the 46th edition of the Jackson Hole Symposium. 

Also known as Disneyland for Central Bankers, the Jackson Hole Economic Symposium is an annual conference that gathers central bankers, economists, financial market participants, and academics from around the world to discuss key issues facing the global economy. The keynote address by the Federal Reserve Chair, traditionally given on the first day of the event, is particularly influential and closely monitored for signals on future U.S. monetary policy directions.

And Powell didn’t disappoint. 

In his August 23rd speech, Powell's remarks focused on the progress the Fed has made in controlling inflation, which had surged in previous years but has since moderated to more manageable levels. He acknowledged that while inflation is moving towards the Fed's 2% target, the fight isn't over, and the Fed remains vigilant. Having said that, he did note the downside risks to employment which is why “the time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

Turning Point Data

Source: Bloomberg

Powell’s particular emphasis on jobs would’ve been in direct reaction to a recent US jobs report that materially revised down the amount of job growth in the economy. Just two days before Powell spoke, the government reported that the economy created over 800k fewer jobs from April 2023 through to March 2024, making it the biggest revision to federal jobs data in 15 years. 

In reaction to Powell’s speech, markets responded in kind with growth in Treasuries, gold, Bitcoin, and stocks while the dollar weakened. Currently, Fed money market pricing data indicates a 32 bps cut for September, implying ~⅔ chance of 25 bps and ~⅓ chance of 50 bps, and 104 bps (4+ full cuts) in the three Fed decision meetings left in 2024.

Source: CME Group

Despite the metaphorical flock of doves released by Powell last week, the Fed is still concerned about inflation flaring up again and as such, investors should be aware of the pace in which cuts will be made. A small basket of countries have cut rates so far in 2024, the UK, EU, China, NZ, and Canada to name a few, but they appear to do so extremely cautiously. Based on this rhetoric, I think over 100 bps of cuts across 3 meetings is a little too aggressive and the market needs to pare back expectations.

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