[Jackson Hole Meeting] Pay attention to Fed Chairman Powell's remarks on whether interest rate hikes will continue even after September

US Federal Reserve (Fed) Chairman Powell and other central bank leaders will discuss economic soundness and monetary policy in Jackson Hole, Wyoming from 8/24 to 26.Chairman Powell's speech is on the 25th at 10:05 a.m. ESTIt's scheduled to start with.

Why is it important?The Jackson Hole meeting has been viewed as an important opportunity for the Fed chair to announce policy changes. All of former Chairman Bernanke's speeches from 2007 to 2009 were given during critical phases of the financial crisis. Also, the lectures from 2010 to 2012 foretold the Fed's new stimulus measures.

The 2023 Jackson Hole Economic Policy Symposium will be held at a time when most major central banks are nearing the final stages of raising interest rates and curbing inflation. The next challenge facing developed countries is to maintain economic growth and avoid falling into recession.

Data released after the FOMC meeting in July showed that the economy remains resilient.

GDP for the second quarterIs consensusIt was significantly higher: Preliminary second quarter GDP report for the second quarter2.4% increase、It exceeded the expected 1.8% increase。

July retail sales excluding automobilesExceeded consensus: US retail sales in July0.7% increase、It exceeded the expected 0.4% increase。

However, in 2023The University of Michigan Consumer Attitudes Index for August was 71.2, down from 71.6 in JulyThen,There is a possibility that it will take time for the purchasing power of US residents hit by high inflation to recoverIt shows.

What is the theme of the 2023 conference“Structural Changes in the Global Economy”That's it. In recent years, there has been a partial reversal in the movement of globalization. After the pandemic, it came to be accepted by bipartisans that it was necessary to expand production within America. As a result,“Chips and Science Act (Chips and Science Act)”Policies to promote domestic production such as these were born. Construction spending on manufacturing facilities has more than doubled recently.

If we switch to a direction that emphasizes supply security rather than minimum costs, low interest rates from 2009 to 2021 may not be enough to control inflation. The construction of a new factory,Demand for labor and materials increases, which causes inflationit's the body.

The US central bank released the minutes of the July policy meeting last week. According to the minutes of the meeting, most Fed executives at the timeRisk of rising inflationI was watching it in a big way. Meanwhile, the two supported leaving interest rates unchanged, and differences of opinion were seen for the first time in a long time about the future direction.

What do economists expect Chairman Powell to say when it comes to the Jackson Hole Conference?

Goldman SachsHe said he didn't expect a strong signal from Chairman Powell this week. There is a high possibility that signals will mostly be withheld until the July PCE inflation and non-farm payroll reports that will continue next week. Analyst Lexi Cantor said, “The Fed will not change its current stance before being judged by these new data.”

Bloomberg analystsAnna Wong said in the preview, “We anticipate that Chairman Powell will hit a more balanced tone in Wyoming. While hinting at the end of the tightening cycle, it will emphasize the need to keep interest rates high for a long period of time,” he pointed out.

On the other hand,Bank of AmericaIt is predicted that Chairman Powell will resist expectations of interest rate cuts. Analyst Aditya Barbe stated that the tone of Chairman Powell's speech “considering the strong data flow since the FOMC meeting in July, there is a possibility that Jackson Hole will not be very well-balanced.” According to the latest report, “The Fed would not want to short circuit the business cycle, but policymakers are probably increasingly concerned about re-accelerating inflation driven by strong aggregate demand. Therefore, we expect Chairman Powell, implicitly and explicitly, to resist the extent of interest rate cuts that the market is pricing next year.”

There is growing uncertainty about the degree of monetary policy tightening after the pandemic.Chicago Fed's National Financial Environment Index (NFCI)was -0.385 with the latest update last week. This means that the financial situation supports economic growth, but considering the positive figures in the 1970s and 1980s, negative numbers indicating “the financial situation has deteriorated”There is a possibility that it has not been tightened enough to contain inflationIt's called.

Economists also use r* (or R-star) to measure the degree of tightness of monetary policy. R-star is a real neutral interest rate that balances the economy over the long term.In a Dallas Fed study, long-term R-star is estimated to be around 0.70%. However, when neutral interest rates are higher than previously thought and close to the current Fed Fund target range of 5.25 to 5.50 percent, it is possible to explain why the economy is holding up far better than most analysts had anticipated. Real interest rates are currently nearing their peak, but have yet to reach that point, according to calculations by the Dallas Fed.

Currently, the Fed often guides policy movements in advance, so there is little power for planned events to change the trajectory of the market. Taking 2022 as an example, the stock market almost factored in and bottomed out in October last year.

Market predictions for this year's corporate profits, which are shown in EPS forecasts for S&P 500 constituent stocks, also bottomed out in June, and it seems that they have now been revised upward.

However, since the stock market is affected by conflicting factors, it is difficult to predict. Unlike last year, the earnings forecast for 2023 is on an upward trend, and the outlook for a recession is lagging behind. To offset this favorable trend, higher interest rates mean discounting future profits to current values. This has the greatest impact on growth stocks. This is because most of that profit will be in future years. Recent market movements reflect this. Expectations for rising profits and rising interest rates are likely to become a constant contradiction for some time in the stock market in the future.