The annual Jackson Hole global central bank meeting is set to hit next Friday, August 26, amid an increasingly fierce game between the market and the Fed.

Federal Reserve Chairman Powell will give a speech at this annual meeting to discuss the economic outlook, which may herald the direction of borrowing costs in the United States.And determine the success or failure of the bets that American financial markets have been betting on for some time.

Traders have reduced their bets on a Fed rate cut in 2023 over the past week.

For most of the past year, investors who bought long-term Treasuries and bet on a flattened yield curve have been winners, with longer-term Treasuries yielding lower yields relative to shorter-term yields and, in many cases, well below short-term yields. Traders expected and took advantage of a series of measures by the Fed to raise interest rates sharply in response to persistently high inflation.

But whether the deal continues to win-that is, a flatter curve-depends not only on how many more interest rate hikes will be made, but also on the economic consequences of continued rate hikes and the Fed's tolerance for pain.

Now many investors seem to have concluded that the Fed will soon end monetary tightening and will cut interest rates in 2023 in response to the economic slowdown. The result is a rebound in the stock and bond markets, undermining the Fed's efforts to fight inflation.

But as a number of senior Fed officials have recently made hawkish remarks, they seem to be setting the tone for Powell's speech.There is growing speculation that Powell will adopt a tough tone that runs counter to current market expectations at this annual meeting.

Tim Magnusson, chief investment officer of hedge fund Garda Capital Partners, said "Powell would tend to be hawkish" and stressed that restoring price stability was a top priority.

Markets have also begun to react to the Fed's hawkish views.

Over the past week, the yield curve has steepened again as long-end Treasury yields have risen, although the swap market still expects the Fed's policy rate to peak at around 3.7% around March next year.But the expected easing has shrunk to about 40 basis points from about 80 basis points last month.

What might Powell say at the next annual meeting?

At the annual meeting of global central banks a year ago, global investors were listening carefully to every word of Powell's speech in order to gain insight into the prospects for economic growth, inflation and monetary policy in a highly uncertain environment.

But it turns out that many of his assessments last year were wrong, so it will be difficult for him to be convincing in this year's annual speech. But he will have to try for the Fed's efforts to curb inflation.

In his speech in 2021, Powell was wrong in several important respects.He asserted that the incipient surge in inflation was "probably temporary", that low unemployment "underestimated the weakness of the labour market" and that "we see little evidence that wage increases could lead to excessive inflation". He endorsed the more inflation-tolerant monetary policy framework adopted by the Fed in 2020, which was "well suited to today's challenges".

Analysts sayPowell clearly hopes this year's speech will be more prescient and is expected to emphasize three themes:1. The US economy still has momentum to move forward, the labor market is extremely tight and inflation is unacceptably high. 2. The Fed must further tighten monetary policy to restrain the economy and ease the pressure on the labor market. 3. The Fed will not relax unless it is sure that it has taken measures long enough to achieve its 2% inflation target.

Powell might make it clearEven if the Fed shifts to a smaller rate hike in the coming months, it does not necessarily mean a lower peak.As the Fed narrows the gap between current and target interest rates, it may be able to move towards its ultimate consensus goal in a more cautious manner. From 2004 to 2006, for example, the Fed raised interest rates by 25 basis points 17 times in a row, raising its benchmark interest rate from 1 per cent to 5.25 per cent. The pace of tightening has little to do with the peak interest rates will reach.

From "inflation is too low" in 2020 to "inflation is temporary" in 2021, Powell may be: inflation is excessive in 2022

Review Powell's speech at the Jackson Hole annual meeting over the past two years:

• 2020 Jackson Hole Annual meeting: inflation needs to rise further

Before the COVID-19 epidemic, the US economy maintained nearly a decade of low inflation. From February 2009 to February 2020, there were only 10 months of core PCE inflation of more than 2 per cent year-on-year. So much so that the FOMC's estimate of neutral interest rates fell from 4.25 per cent in early 2012 to 2.5 per cent in August 2020.

In August 2020, the overall CPI of the United States was 1.3%, the core PCE price index was 1.5%, the unemployment rate was 8.4%, and total employment was 141 million, down about 11.5 million from February 2020.

The Fed also realized that the US economy could bear a much lower unemployment rate after the 2008 financial crisis.In February 2020, the unemployment rate fell to 3.5% Murray-and inflation will not get out of control. In earlier times, low unemployment tended to lead to price increases due to wage increases.

Against this background, Powell said in his speech at the 2020 Jackson Hole annual meeting:

"it is worrying that inflation continues to fall below our long-term target of 2 per cent."

Powell also said"the goal of monetary policy may be to achieve an inflation rate of moderately above 2 per cent over a period of time", conveying a subtle change in the Fed's monetary policy, but this subtle change ultimately had a significant impact.

Powell believes thatAllowing inflation to rise slightly would discourage people from thinking that FOMC should raise interest rates once inflation reaches 2 per cent.

At that time, this new method made a lot of sense. After all, inflation has been much lower than expected for a long time. In addition, the decline of the epidemic and the blockade have limited price growth.

• Jackson Hole 2021: inflation is temporary

In 2021, affected by the epidemic, the Jackson Hole annual meeting was held online. At that time, however, the National Bureau of Economic Research (NBER) had just announced that the unemployment rate had fallen from nearly 15 per cent at the start of the epidemic to 5.2 per cent in August 2021, and that the brief but devastating recession was over.

Two massive stimulus bills fill the pockets of American consumers with cash, and people start spending. Surging demand has overcrowded the port, causing the supply of certain manufactured goods, such as cars, to soar.

Soon, inflation was no longer below the Fed's 2 per cent target, and even in August 2021, the core PCE price index reached 3.6 per cent year-on-year, up from 1.8 per cent a few months ago.

In early 2021, Fed officials insisted that inflation was "temporary".With millions of Americans still unemployed and the announcement of a "new inflation policy" just last year, the Fed hesitated to put the brakes on the economy.

Powell also expressed his view of temporary inflation at the Jackson Hole annual meeting in 2021.

He believes that higher prices will fade sooner or later, citing five reasons:

1. Price increases are concentrated on a few commodities.

2. For a small number of commodities whose prices have soared, the rate of increase has moderated somewhat.

There is little evidence that wages are driving up inflation.

4. Longer-term inflation expectations are under control.

5. Pre-epidemic trends-globalization, population ageing and technological progress-remain effective in curbing inflation.

Although Powell's logic made sense at the time, the Fed was later hit in the face by soaring inflation and started a cycle of aggressive rate hikes. After four rate increases, FOMC has raised the federal funds rate from 0.25% to 2.25%.

• Jackson Hole 2022: inflation is excessive

Standing at this point in August 2020, the Fed is wrong about temporary inflation.

By July 2022, inflation in the United States had spread far beyond several categories, such as cars. Food prices rose nearly 11% year-on-year, while gasoline prices rose 44%. At the same time, the prices of important items such as housing (+ 5.7%), transportation (+ 9.2%) and health care (+ 5.1%) all rose year-on-year.

The Atlanta fed's wage growth tracker shows that u.s. wages rose by 6.7%, almost 3 percentage points higher than Powell's forecast a year ago.

Although long-term inflation indicators remain low, macroeconomic trends are not as good as the Fed expected.The country's population is still aging, and the conflict between Russia and Ukraine has seriously affected energy prices and fuelled inflation in all other areas.

Although the July CPI report showed that inflation moderated from its June high. But the Fed's favorite indicator of inflation, the core PCE price index, was 4.8% in June, still more than twice the Fed's target inflation.

Market participants expect Powell to reaffirm his determination to raise interest rates even if GDP shrinks in the first half of 2022.After grossly ignoring inflation last year, the Fed does not want to make the same mistake today.