During the annual central bank meeting held in Jackson Hole, Wyoming, USA on Friday, August 23, Federal Reserve Chairman Powell will give an important speech that has attracted global attention. Wall Street expects Powell to confirm that the Fed will cut interest rates, and the debate among stock traders has shifted from whether or not the Fed will cut interest rates to how much they will cut.

""Steward Partners Global Advisory" wealth management executive director Eric Beiley said:"

"If traders hear that interest rates are about to be cut, the stock market will respond positively. If we don't hear what we want to hear, it will trigger massive sell-offs."

"The market is very confident that interest rate cuts will soon come. If Powell does not emphasize that this is the way to the future, it will be surprising."

"Bloomberg Macro Strategist Simon White believes that Powell has the opportunity to emphasize this week that the risk of US stock entering economic recession in recent times is limited, thus further reducing the risk of asset prices being influenced by economic negatives. He will undoubtedly emphasize the Fed's response function is dependent on data, but also point out that the US economy is relatively healthy, thereby reducing the risk that the market could trigger feedback loops due to recession. The expected magnitude of interest rate cuts in the market seems to be easily affected by re-pricing."

However, some Wall Street professionals warn investors not to expect too much clear language from Powell. For example, Tom Hainlin, national investment strategist for US Bank Wealth Management, said:

"Looking back at speeches in Jackson Hole in the past, we are unlikely to get very clear comments from Powell."

Some analysts believe that the key to maintaining market sentiment is not what Powell says, but his tone. Stephanie Lang, chief investment officer of Homrich Berg, said:

"His (Powell's) tone is crucial. If his comments shock the market and his attitude is strong, the stock market will respond negatively."

Dudley (William Dudley), the former third-in-command of the Federal Reserve and New York Fed chairman from 2009 to 2018, said that Powell is likely to suggest that tight monetary policy is no longer necessary, but will not suggest how much the first rate cut of this round will be, especially considering that the non-farm employment report will be released on September 6, and when Fed officials make decisions at the next Fed meeting on September 18, they must consider this major report.

At present, traders generally expect that the Fed will cut interest rates in September, but they are uncertain about the magnitude of the interest rate cut. In the first few days of this week, few Fed officials publicly spoke. Powell's remarks on Friday are particularly important. Citigroup believes that this is why option traders predict that the S&P 500 index will fluctuate by more than 1% in any direction on Friday. This prediction is based on the cost of call and put options that are at-the-money.

Last week, Wall Street news mentioned that in recent years, when Powell speaks at the Jackson Hole conference, the US stock market frequently experiences seismic activity. For example, in 2022, Powell's speech scared the US stock market, and the theme of "pain" directly caused the three major US stock indexes to plummet by 3%-4% in just 9 minutes on that day. There were also significant market fluctuations in 2023, but they occurred on the Thursday before Powell's speech, and the Dow fell by the largest number of points in five months that day, while the Nasdaq fell by nearly 2%."

On Monday of this week, some comments said that because there were signs of economic resilience, traders had reduced their bets on large interest rate cuts in September, and it is expected that there will be a reduction of approximately 30 basis points in September. Hainlin said that this means that the market risks brought by the Jackson Hole conference are fading, and investors no longer expect significant interest rate cuts. He said:" We want to know what the Fed's rate path actually looks like, whether it lowers its interest rate at every meeting, or still depends on employment and inflation data. But he (Powell) may not say so. Traders are more likely to get this information through the Fed's September meeting."

Editor/Emily