Powell’s address at the Fed’s Jackson Hole Economics Symposium has been eagerly anticipated by the market participants. Although the majority of the event has been devoted to academic deliberations on significant subjects (today’s focus is on ‘Structural Shifts in the Global Economy’), the immediate market impact is expected to be limited. However, to commence the proceedings, the Fed Chair will provide succinct insights into the prevailing economic landscape and its implications for US monetary policy.

Today, the market is closely monitoring two primary aspects. First, will Powell affirm the Fed’s inclination to maintain the current interest rates in the forthcoming policy update scheduled for September? Second, will he offer greater clarity on whether the rates have attained their zenith, and if so, when a reduction might be envisaged?

During the July update, Powell remained guarded about the potential pause in rate hikes for September, citing the dependency on data. Subsequent to that juncture, several of his colleagues have expressed support for a pause, and Powell might subtly allude to this as the probable course of action. While the markets would interpret this as a favourable development, it is not expected to be a surprising revelation, given the prevailing low probability of a rate hike. Powell is unlikely to explicitly indicate that current rates represent the peak. Instead, his assertion might emphasize the Fed’s ongoing efforts to combat inflation, suggesting that additional measures might be necessary. This would consequently avoid any explicit indication of the timing of a rate reduction; Powell may adopt a stance asserting the necessity of maintaining higher rates for an extended period. Furthermore, attention should be given to the speech of European Central Bank President Lagarde later in the day.

On the data front, the current schedule is relatively modest. The August German IFO survey is projected to reflect the prevailing economic fragility, albeit with a minor upswing anticipated in the expectations component. In the US, the second reading of the University of Michigan consumer sentiment index for August is anticipated to confirm a minor decline.

Within the fixed-income market, US Treasury yields exhibited substantial volatility yesterday, initially experiencing a decline in early trading, followed by a significant upturn later in the day. Meanwhile, both UK and Eurozone yields concluded the day on a downward trajectory, mirroring the earlier US sell-off. Shifting focus to currency markets, the British pound has encountered depreciation against both the relatively robust US dollar and the euro.