The Jackson Hole symposium was the floor for announcing major policy moves in the past. Ben Bernanke announced QE2 and QE3 there and Mario Draghi introduced ECB forward guidance. There’s little wonder investors are awaiting the speech from Fed’s Jerome Powell. What to expect?
The biggest thing is inflation targeting. Right now the target is around 2% and this may not change but markets expect Powell to say that the Fed will target AVERAGE inflation. This means that the Fed will maintain 0% rates for some time even after actual (PCE) inflation exceeds 2%. Markets expect the Fed to maintain 0% rates for 5 more years! Market reaction to Powell speech will largely depend on the use of AVERAGE targeting scheme. Such mention can be positive for risk assets.
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Create account Try a demo Download mobile app Download mobile appThere’s growing discussion that the Fed is inflating stock market bubble. Any warnings from the Fed could be negative for risk assets but Powell has so far denied this and is unlikely to mention it on his own.
Finally, the Yield Curve Control is something that was discussed but it now seems to be dead idea. Markets will still be happy if they get average inflation targeting promise.
US100 rally has been just massive and investors want to see new promises from the Fed.
