Markets expect Powell’s language to be dovish on rate cuts: Economist

The Federal Reserve will kick off its Jackson Hole Economic Symposium on Thursday, giving Wall Street a clearer picture of the pathway ahead for interest rate cuts. S&P Global Ratings chief US and Canada economist Satyam Panday and Steward Partners Global Advisory executive managing director of wealth management Eric Beiley join Morning Brief to break down what investors should look out for and how markets (^DJI, ^IXIC, ^GSPC) may react to Fed Chair Jerome Powell’s speech on Friday, August 23.
“I think Jay Powell is not going to really show exactly what they’re going to do in September, although he may lean towards being more dovish than not. But we do expect some kind of a signal coming in from either him or other Fed central bankers in their interviews that they may be ready to cut a 25-basis-point rate cut for September. There won’t be much said about the next few cuts,” Panday explains.
As usual, both Panday and Beiley expect Fed officials to stress their data dependence and reference some of the latest economic data points in their remarks.
Beiley adds that if Powell’s speech doesn’t point to a rate cut, markets would likely experience volatility and a sell-off: “The risk trade has come back on, so I think you would see investors get more nervous and sell off the riskier parts of the market, go more conservative because rate cuts are expected. And so if that doesn’t happen, I expect volatility would certainly heighten.”
Ahead of the Fed’s September meeting, Beiley believes investors should remain “cautious”:
“You’d probably want to wait and react to what they say, because if they surprise and don’t give language that shows they’re easing, you could see a sell-off. And so in the short term, I would be on the side of caution. But long term, I think growth equities clearly is the very strong trend that we’ve seen now for a while in the market. So I would stick that course.”
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