What investors should be listening for in Jerome Powell's Jackson Hole speech

Business Insider

8 hours ago

Tensions in the market are running high ahead of Jerome Powell's remarks at the Fed's Jackson Hole policy symposium.
The Fed chairman is expected to give fresh insight into the central bank's plans for rate cuts. Investors have a lot riding on what Powell says on Friday, as coming rate cuts are thought to be bullish for stocks. However, uncertainty is once again creeping up after a mixed bag of economic data slightly lowered the odds of a cut.
The CME FedWatch Tool shows an 85% chance of a cut next month, compared to 99% a week ago.
Michael Arone, chief investment strategist at State Street Investment Management, says told Business Insider that investors should be listening for a few big themes from the Fed chief.
Powell's tone
Arone says he'll be focused on how Powell could use the platform to signal a potential shift in the central bank's monetary policy, and this should be top of mind for investors tuning in.
"I think the biggest thing that investors should be looking for is [the] type of language where Powell suggests that the Fed is moving from moderately restrictive policy to more neutral policy," he told Business Insider.
Arone said that he thinks the biggest shift will center around that topic, and that investors should also pay attention to language around the balance of risks in regards to the Fed's dual mandate of lowering inflation and boosting the labor market.
"I think that the one from moderately restrictive to more neutral is the key phrase and the balance of risks is another often key signal, suggesting that the balance of risks have moved to a level where it's more appropriate to cut rates," he said.
That said, Arone predicted that if Powell signals the possibility of a September rate cut, he will likely remain fairly cagey regarding what will follow in subsequent meetings.
Even if interest rate cuts are coming, the market's reaction may be mixed
As Arone sees it, Powell will likely use his speech from Jackson Hole to reveal that the policy shift investors have been waiting for is coming.
"I believe that he will suggest that it's time to move towards a more neutral target, and that that will likely resume in September," he stated, adding that if he does not, markets will likely tumble.
Despite Trump's constant criticism, Arone doesn't think Powell will opt for rate cuts because of political pressure. Instead, he believes that the Fed chairman will continue relying on economic data and monitoring the impact of tariffs on inflation.
While Arone also predicted that markets will likely react well to the signal that interest rate cuts are coming, he thinks that the longer-term effect could be more complicated, particularly if Powell opts against providing much detail beyond plans for next month's meeting.
"It'll be interesting to see how markets react to that," he said. "They may want more specific guidance on future monetary policy, and I believe that Chairman Powell will be reluctant to give it."
Arone added that if Powell doesn't signal a shift toward more rate cuts, he expects a negative reaction, with volatility spiking in the stock market. .