Source: Golden Ten Data

Economists expect the Fed to keep interest rates unchanged at the end of the session this week, and will suggest that it may raise interest rates by 25 basis points at one of the two remaining meetings this year, but will not promise to do so.

Powell's speech at the central bank's annual summit held in Jackson Hole, Wyoming last month seemed to satisfy both hawks and doves.His remarks included both anti-inflation promises and gentle language, but did not reveal specific plans to raise interest rates again.

Bill Adams (Bill Adams), chief economist at UniCredit Bank, said in an interview, “Powell's speech at Jackson Hole conveyed informationThe Brushwork of God, because everyone heard what they wanted from it”.

He anticipated that Powell would echo this speech at this week's press conference.Stresses that the Fed is determined to return the inflation rate to the 2% target, and is convinced that interest rates will remain high for a long time.

Is the market too optimistic? Beware of Powell throwing “bombs” during the Q&A session!

Although Powell's statement may be lacking in innovation, market analysts said,Powell's Q&A session with reporters and the latest “bitmap” of interest rate predictions by policymakers may provide news affecting the market.

Steve Sosnick (Steve Sosnick), chief strategist at Yingtou Securities, said in an interview, “People generally think this conference won't 'work' on market expectations, but that doesn't mean it's irrelevant.” “The truth is that the VIX is relatively low. This shows that the market is quite optimistic, if not complacent.A complacent market is sometimes more vulnerable to negative shocks”. The VIX (“fear indicator”) closed below 14 last Friday.

So, what kind of information will actually affect investors?

Currently, investors expect the Fed may start cutting interest rates in the middle of next year. Analysts said,Anything that could dispel them from this view could weaken the US stock market while boosting US Treasury yields and the dollar.

Liz Ann Sonders (Liz Ann Sonders), chief market strategist at Schwab, said,During the Q&A session at the press conference after the conference,Clues may surface, and this often has more impact on the market than Powell's statement.

In an interview, Sanders said, “These 45 minutes to 1 hour are often times when the market fluctuates greatly. ThisIt involved discussions about interest rates remaining high for a longer period of time and expectations of interest rate cuts in 2024, and whether Powell would object to this”.

Concerns about stagflation have resurfaced, will expectations of interest rate cuts still be “thwarted”?

Some people on Wall Street have begun to worry about stagflationThe current pricing in the financial market also indicates that the probability that the Fed will completely end raising interest rates is about 50%.

Since the beginning of August, more data suggests that the US economy may finally be coping with the pressure from the Fed's most aggressive interest rate hike since the 1980s. The number of corporate and individual bankruptcies continues to rise.

There are also signs that the post-pandemic hot labor market may begin to cool down. The Ministry of Labor's monthly employment report shows that fewer than 200,000 jobs were added in August, while the data for the previous two months was also lowered, and the unemployment rate rose to 3.8%.

Meanwhile, consumer prices have accelerated for two months in a row. A report from earlier this week showed that in the 12 months to August, consumer prices rose 3.7%, while the month-on-month increase was 0.6%, the biggest increase in 14 months.

To make matters worse, despite relatively strong retail sales data released earlier this week, the recovery in student loan payments in October has once again raised consumer concerns. The auto worker strike involving the top three US automakers and the threat of a government shutdown have also raised concerns that the economy will be hit.

EY chief economist Gregory Daco (Gregory Daco) said in an email comment,“The triple threat of a resumption of student loan payments, a government shutdown, and a strike by auto union workers could seriously affect GDP growth in the fourth quarter”.

Powell may be asked to comment on any or all of these questions. He may also be asked to directly answer investors' expectations about when the Fed will cut interest rates for the first time this cycle. Anticipation of a policy shift proved premature last summer, which caused a brief but strong bear market rebound in US stocks to fail.

Sosnick said,A repetition of this situation is likely to cause problems for the stock market once again.“Let's see if the Fed agrees with the market's assumptions about cutting interest rates,” he added.

According to the Chicago Mercantile Exchange Group (CME) “FedWatch (FedWatch)” tool, traders generally expect the Fed to keep interest rates unchanged on Thursday, yet the possibility of another rate hike later this year is equally likely.

Evercore ISI Vice Chairman Krishna Guha (Krishna Guha) said that even if the Fed's bitmap predictions continue to show that interest rates will be raised again this year, the Fed “will not exercise its right to raise interest rates again unless inflation and job market progress stall in stronger economic growth.”

Many economists, including Michael Hanson (Michael Hanson), a senior global economist at J.P. Morgan Chase, believe that the Fed has completely ended raising interest rates. Others think the Fed will raise interest rates one more time before ending the cycle of rate hikes, while only a few think more action may be needed.

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