We didn’t learn too much from Jerome Powell yesterday, but we didn’t expect to. The economy’s fine, inflation is getting better and interest rates should be lower soon. But boring guidance is better than no guidance at all, which is what lies ahead as we brace for the “Jackson Hole News Hole.”
At one level the press conferences following Fed meetings are serious explorations of recent macroeconomic data and current monetary theory. At another, they do little more than produce a simple “risk on” or “risk off” signal based on what our beleaguered Fed Chair said or should have said, meant to say or wouldn’t say. The results are distilled into broadcast chyrons and email headlines that set market expectations for the next several days. “Federal Reserve Clears Path for September Interest Rate Cut” was the message from Wall Street Journal’s website after the reporters dispersed yesterday afternoon.
But with summer doldrums at hand and little formal guidance scheduled over the next several weeks, expect investors and markets to turn jumpier than usual.
The next rate-setting meeting is seven long weeks away and the only mildly authoritative event between now and then is the Federal Reserve Bank of Kansas City’s Economic Policy Symposium on “Reassessing the Effectiveness and Transmission of Monetary Policy.” It’s a series of seminars on topics as diverse as labor market resilience and pricing credit risks that frame a Powell speech against the stunning backdrop of the Grand Tetons.
Starting today, Fed watchers divide their summer into the weeks leading up to Jackson Hole (August 22-24) and the weeks after. First comes the steady drumbeat of commentary that fuels speculation around what signals Powell will send (or avoid sending) when he addresses the assembled central bankers and scholars. Then come two short weeks during which other members of the Federal Open Market Committee are allowed to amend, adjust or clarify Powell’s words before the “quiet period” that precedes the September 17-18 meetings and a widely-expected rate cut.
All this to gauge what is arguably one of the world’s least interesting charts:
In the absence of anything better, Fed analysts and investors will seize whatever they can find to fill the gap. This year, for better and for worse, they will attempt to draw meaning from the U.S. presidential campaign. In particular, they will assess the prospects of a president who has promised some very dramatic changes for taxes, tariffs, labor markets and the traditions of central bank independence.
This allows for lots of opportunity for the Treasury market to try to reflect whether Donald Trump will win, whether he will really slap 10% tariffs on all imports (and 60% on goods from China) and just what he means when he says he will “let” Powell to keep his job if he’s “doing the right thing.”
There there will likely be other news to distract markets like this week’s Israeli attacks in Lebanon and Iran that may trigger escalation and a sustained spike in oil prices. And there will be the normal confusing stream of data on unemployment, inflation, housing and consumption.
But with very little official guidance for the next couple of months, this is a stretch that leaves investors to speculate on the speculation of journalists and analysts who must make the most out of very little. Buckle up for some volatile market days and stock up on your summer reading.