FX.co ★ Markets hope for dovish signals from Powell in Jackson Hole

Tension and turmoil are once again gripping global markets. All eyes are on the upcoming testimony by Federal Reserve Chairman Jerome Powell at the annual symposium in Jackson Hole.

According to analysts at Wolfe Research, Powell may deliver a hawkish message at the symposium, which could potentially derail equity markets.

Apart from the recent US Consumer Price Index (CPI) data for July, analysts and regulators remain focused on the Producer Price Index (PPI). This indicator is under close scrutiny, as some of its components impact the Federal Reserve’s preferred inflation gauge—the PCE deflator, which is set to be released later.

“Markets have responded surprisingly positively to higher inflation,” Wolfe Research notes. Yet, market pricing still implies 2.5 rate cuts by the end of 2025.

Amid the strong rally in US stocks to record highs, analysts believe the symposium presents an opportunity for Powell to adopt a softer stance on monetary policy.

Following the CPI report, which showed that core services excluding housing and basic goods are making a significant contribution to inflation, Wolfe Research suggests the US central bank may opt for fewer rate cuts than markets expect.

Such a scenario, they warn, could be “potentially bearish for stocks.” Against this backdrop, experts recommend that investors maintain so-called barbell positioning—a balance between defensive and cyclical assets.

At the same time, Wolfe Research emphasized that investors should brace for the possibility that the Fed’s path to monetary easing may prove longer than markets anticipate.