Jackson Hole Preview: Fed Chair Powell in the Spotlight
Tomorrow marks the opening of a three-day annual event in Jackson Hole, Wyoming, a gathering of key central bankers that the world and financial markets will monitor closely. This year’s event is titled: ‘Reassessing the Effectiveness and Transmission of Monetary Policy’.
Ahead of this week’s annual meeting, Minneapolis Fed President Neel Kashkari made the airwaves, stating he is more open to lowering the Fed funds target rate in September. In an exclusive with the Wall Street Journal, Kashkari commented: ‘The balance of risks has shifted, so the debate about potentially cutting rates in September is an appropriate one to have’. Mary Daly, San Francisco Fed President, echoed a similar sentiment, noting a ‘gradual approach’ to lowering borrowing costs as recent economic data has given her more confidence that inflation is heading in the right direction.
The threat of a weakening labour market has seen the pendulum swing in favour of lowering the Fed funds target rate at September’s meeting. You may recall the July jobs report observed broad weakness. Employment growth in the US added just 114,000 new payrolls, comfortably lower than the market’s median estimate of 175,000 and easily south of June’s downwardly revised 179,000 print. The US unemployment rate reached 4.3% in July, its highest rate since October 2021, triggering the ‘Sahm Rule’ (former Fed economist Claudia Sahm’s recession indicator). Of note, the jobless rate has increased by nearly a whole percentage point in a year. Additionally, wage growth shrunk to +0.2% between June and July, with average hourly earnings easing to +3.6% over the year in July, down from +3.8% in June.
25 Basis Point Cut?
The question for many traders and investors is whether the Fed will opt for a 25 basis point rate cut or a more audacious 50 basis point cut. Following the release of the July jobs numbers, there was chatter among investors about emergency rate cuts to avoid a recession. However, while it is clear that the jobs market is slowing, the US economy is not in a recession yet. The Federal Reserve Bank of Atlanta GDPNow estimate suggests the US economy is growing at an annualised rate of +2.0%. Furthermore, according to the Advance Estimate from the Bureau of Economic Analysis, real GDP increased at an annual rate of +2.8% in Q2 24 (following real GDP increasing +1.4% in Q1).
According to the markets, there’s a 70% chance of a 25 basis point cut currently priced in for September and a 30% probability of a 50 basis point move. The pace at which the Fed eases policy will be a point of interest for traders and investors at this week’s event; US Federal Reserve Chairman Jerome Powell is expected to reiterate his dovish stance in his appearance on Friday at 10 am ET (the Bank of England’s Governor Andrew Bailey is also scheduled to speak on Friday, with an appearance from the European Central Bank’s Philip Lane on Saturday). Powell’s recent commentary emphasised a possible rate cut should inflation and the jobs market cool. According to the July Consumer Price Index (CPI), released by the Bureau of Labor Statistics, headline inflation eased more than expected to +2.9% in the twelve months to July from +3.0% in June (consensus: +3.0%).
Of course, there is no guarantee that Fed Chair Powell will say anything of note at this week’s gathering. While there have been times when central bank speakers have used this occasion to make announcements, this is not always the case. Nevertheless, should the Fed Chief make any waves, it is worth noting that the US Dollar Index is heading into this event ‘on the ropes’, down -2.4%, and with room to continue exploring deeper waters, according to the technical landscape.
Dollar Index Ahead of the Event
As expected, the US Dollar Index has been on the back foot of late, making easy work of notable support levels. From the monthly chart, price action left resistance at 109.33 unchallenged and is fast approaching familiar support at 99.67. This is a level that boasts additional technical confluence from the 50-month simple moving average (SMA) at 99.86 and two nearby Fibonacci retracement ratios coming in at 98.72ish. Also of technical relevance is the Relative Strength Index (RSI), which recently crossed south of the 50.00 centreline, indicating negative momentum on the longer-term chart.
On the daily chart, price elbowed through key support at 101.78 on Tuesday, with the level now marked as possible resistance. Looking ahead, the next layer of support falls in at 101.01. Ultimately, these levels will be key in the short term from a technical standpoint. A retest at the underside of resistance makes ‘technical sense’ in light of the current downtrend and could draw bearish interest.
Ahead of this week’s annual meeting, Minneapolis Fed President Neel Kashkari made the airwaves, stating he is more open to lowering the Fed funds target rate in September. In an exclusive with the Wall Street Journal, Kashkari commented: ‘The balance of risks has shifted, so the debate about potentially cutting rates in September is an appropriate one to have’. Mary Daly, San Francisco Fed President, echoed a similar sentiment, noting a ‘gradual approach’ to lowering borrowing costs as recent economic data has given her more confidence that inflation is heading in the right direction.
The threat of a weakening labour market has seen the pendulum swing in favour of lowering the Fed funds target rate at September’s meeting. You may recall the July jobs report observed broad weakness. Employment growth in the US added just 114,000 new payrolls, comfortably lower than the market’s median estimate of 175,000 and easily south of June’s downwardly revised 179,000 print. The US unemployment rate reached 4.3% in July, its highest rate since October 2021, triggering the ‘Sahm Rule’ (former Fed economist Claudia Sahm’s recession indicator). Of note, the jobless rate has increased by nearly a whole percentage point in a year. Additionally, wage growth shrunk to +0.2% between June and July, with average hourly earnings easing to +3.6% over the year in July, down from +3.8% in June.
25 Basis Point Cut?
The question for many traders and investors is whether the Fed will opt for a 25 basis point rate cut or a more audacious 50 basis point cut. Following the release of the July jobs numbers, there was chatter among investors about emergency rate cuts to avoid a recession. However, while it is clear that the jobs market is slowing, the US economy is not in a recession yet. The Federal Reserve Bank of Atlanta GDPNow estimate suggests the US economy is growing at an annualised rate of +2.0%. Furthermore, according to the Advance Estimate from the Bureau of Economic Analysis, real GDP increased at an annual rate of +2.8% in Q2 24 (following real GDP increasing +1.4% in Q1).
According to the markets, there’s a 70% chance of a 25 basis point cut currently priced in for September and a 30% probability of a 50 basis point move. The pace at which the Fed eases policy will be a point of interest for traders and investors at this week’s event; US Federal Reserve Chairman Jerome Powell is expected to reiterate his dovish stance in his appearance on Friday at 10 am ET (the Bank of England’s Governor Andrew Bailey is also scheduled to speak on Friday, with an appearance from the European Central Bank’s Philip Lane on Saturday). Powell’s recent commentary emphasised a possible rate cut should inflation and the jobs market cool. According to the July Consumer Price Index (CPI), released by the Bureau of Labor Statistics, headline inflation eased more than expected to +2.9% in the twelve months to July from +3.0% in June (consensus: +3.0%).
Of course, there is no guarantee that Fed Chair Powell will say anything of note at this week’s gathering. While there have been times when central bank speakers have used this occasion to make announcements, this is not always the case. Nevertheless, should the Fed Chief make any waves, it is worth noting that the US Dollar Index is heading into this event ‘on the ropes’, down -2.4%, and with room to continue exploring deeper waters, according to the technical landscape.
Dollar Index Ahead of the Event
As expected, the US Dollar Index has been on the back foot of late, making easy work of notable support levels. From the monthly chart, price action left resistance at 109.33 unchallenged and is fast approaching familiar support at 99.67. This is a level that boasts additional technical confluence from the 50-month simple moving average (SMA) at 99.86 and two nearby Fibonacci retracement ratios coming in at 98.72ish. Also of technical relevance is the Relative Strength Index (RSI), which recently crossed south of the 50.00 centreline, indicating negative momentum on the longer-term chart.
On the daily chart, price elbowed through key support at 101.78 on Tuesday, with the level now marked as possible resistance. Looking ahead, the next layer of support falls in at 101.01. Ultimately, these levels will be key in the short term from a technical standpoint. A retest at the underside of resistance makes ‘technical sense’ in light of the current downtrend and could draw bearish interest.
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