For Wall Street, the focus of this Jackson Hole meeting is likely to be on the speech of Fed Chairman Powell, which is scheduled for Friday.

This annual seminar comes at a critical moment for the U.S. economy. The Fed's policy rate has been at its highest level in decades over the past year, which has helped reduce inflation and slow down economic activity. Meanwhile, the unemployment rate has been rising, leading Wall Street to believe that the Fed will begin cutting rates in September.

The Fed has already set the tone for a rate cut. After focusing on inflation for many years, policymakers have begun expressing concern about the strength of the labor market in recent months, which is the second component of the Fed's dual-mandate. Powell reiterated this view after the recent Fed policy meeting.

Investors will closely watch Powell's speech on Friday for any hints about the monetary policy trajectory, including the scope of the first rate cut in years and the potential speed of subsequent rate cuts.

What might Powell say at Jackson Hole?

Analysts do not expect Powell's speech to deviate much from his press conference after the July Fed meeting.

Nomura Securities analysts wrote in a report last Friday, "Powell may acknowledge that the Fed is ready to quickly ease policy if the labor market deteriorates."

The health of the labor market was called into question earlier this month when data showed the unemployment rate jumping to 4.3% in July, triggering the Sams rule.

Nomura Securities analysts added, "Despite this, we expect his remarks to be more balanced than the press conference in July - while also pointing out the risks of inflation rising."

Last week, concerns about a recession eased as strong consumer spending reports and a slight drop in jobless claims pointed to economic resilience.

As a result, the market entered a relatively calm state as expectations for a Fed rate cut eased. On Monday, according to federal funds rate futures trading data, traders expect a 50 basis point rate cut by the Fed next month with a probability of 50%.

Now, the probability of a 50 basis point rate cut is only 23%.

Nomura Securities noted that the market's calm "should allow Powell to emphasize that the Fed can remain patient and data-dependent, moderately countering recent market pricing of a too aggressive easing cycle."

Economists at Deutsche Bank wrote in a report on Monday that they expect Powell not to "pre-commit to any specific path of rate cuts, but signal that the Fed is sufficiently confident to begin easing policy soon."

How will the U.S. stock market react?

Even if Powell takes a dovish stance, it may not have a significant impact on the market.

Bank of America analysts recently noted that the S&P 500 index has had limited historical reactions to Jackson Hole meetings. Of course, there are exceptions: in 2022, Powell took a hawkish stance when discussing the need to regain price stability, and the stock market plummeted thereafter.

But they expect this is unlikely to happen this year. Analysts wrote, "As markets have already priced in a rate cut, even an upside move from a dovish Jackson Hole speech may be limited."

Editor/Lambor