Will Powell's speech trigger another sharp drop in the US stock market?, tonight
The annual Jackson Hole Global Central Bank Annual Meeting has started on Thursday local time, and Powell is scheduled to give a public speech around 10am local time on Friday to attract global market attention. Investors hope to learn about the short-term and even long-term monetary policy intentions of the Federal Reserve through this. The market expects Powell to outline the Federal Reserve's recent stance on interest rate adjustments and inflation.
This annual conference will be held from August 24th to 26th, with a duration of three days. Except for the speech by Federal Reserve Chairman Powell, all other discussions are considered closed door meetings. However, the relevant materials discussed during the meeting will be released in real-time on the Kansas Federal Reserve website, and the European Central Bank will also release the content of its President Lagarde's speech on Friday.
Will Powell's speech trigger another sharp drop in the US stock market?
The reason why Powell's speech this week has attracted significant attention from the global market is not only due to its essential importance, but also because the market is concerned that his hawkish stance will once again cause volatility in the US stock market. In 2022, Powell stated in his speech that some "pain" is needed to quell inflation and reiterated his strong stance on inflation. This hawkish speech directly dealt a heavy blow to US stocks, with the Dow Jones Industrial Average falling more than 1000 points, a decrease of 3%, the S&P 500 Index falling 3.4%, and the Nasdaq falling nearly 4%.
Will Powell's speech cause market volatility again today, one year later? Maybe not.
According to data from Bespoke Investment Group, last year's market crash may have been just a random event. Generally speaking, the speech of the Federal Reserve Chairman at the Jackson Hole Central Bank Annual Meeting has had little impact on the market. According to statistics, during the Jackson Hole annual meeting over the past 20 years, the S&P 500 index has risen an average of 0.3%. Since the Kansas City Federal Reserve held its first Jackson Hole annual meeting in 1978, the S&P 500 index has experienced an average decline of 0.1% over the two days of the meeting. Meanwhile, the US stock market performed strongly in the three months following the annual meeting, with the S&P 500 index averaging a 2.6% increase since 1978.
In addition, US stocks typically perform weakly on Mondays after annual meetings, with an average decline of 0.1% in the S&P 500 index since 1978. If we only look at the years when the S&P 500 index has risen by more than 10%, the index will average a 0.4% decline on Monday. For this year, considering the cumulative rise of the S&P 500 index exceeding 15%, a preliminary prediction may be made on how the US stock market will perform next Monday.
Federal Reserve officials believe that interest rates are approaching their peak
On the opening day of this year's Jackson Hole Annual Conference, Philadelphia Fed Chairman Huck stated in an interview that he believes the Fed has raised interest rates to a sufficiently high level to bring inflation rates down to pre pandemic levels in the coming years. "We may have done enough already," he said.
As one of the Federal Reserve's vote commissioners this year, Huck has expressed a preference to maintain interest rates unchanged at the September Fed meeting. He believes that there are signs of a slowdown in the US economy and expects the unemployment rate to rise above 4% next year, but it is uncertain whether the US will experience an economic recession. In addition, Huck tends to maintain high interest rates for a period of time, but cannot predict the point at which interest rate cuts will begin.
Boston Federal Reserve Chairman Collins said on Thursday that there may be a need for further interest rate hikes, which are now very close to the level where interest rates can remain unchanged for a long time. She believes that economic resilience means that the Federal Reserve may need to do more work. Collins does not have voting rights this year.
In addition, former St. Louis Fed Chairman Brad, known as the "Eagle King," said on Thursday that the rebound in summer economic activity may delay the Fed's plan to end interest rate hikes. He reiterated that concerns about recession have been exaggerated, and stronger economic growth may require higher interest rates to continue fighting inflation.
According to data from the US Department of Labor, the US labor market remained stable in July. The unemployment rate decreased by 0.1% to 3.5% month on month. At the same time, the latest data released on Thursday local time showed that the number of people applying for unemployment benefits in the United States last week decreased by 10000 to 230000 compared to the previous week, lower than market expectations, indicating that the labor market is still tight and thus stimulating optimism among market participants that the US economy may avoid recession.
