Midweek, global financial markets are moving cautiously as attention now turns to Jackson Hole, where Federal Reserve (Fed) Chairman Jerome Powell is expected to deliver a keynote speech on Friday.
With market valuations already considered high and Treasury yields signaling strong confidence, investors are viewing the recent small market decline as profit-taking while waiting for the decisive moment in monetary policy.
Based on current expectations, a 0.25 percentage point rate cut at the September meeting is almost certain, and additional cuts by the end of the year have also been fully priced in by investors.
The key question now is whether Powell will confirm those expectations, or instead try to 'cool' sentiment by emphasizing the importance of new economic data before the September decision is made?
Investors are also waiting for clearer guidance on the direction of the Fed's easing policy through 2026. While weak payrolls data earlier this month supported a rate cut, a sharp spike in wholesale inflation to the highest level in three years has reignited concerns about tariff-driven inflation. This is why Fed officials remain wary of being too hawkish.
Powell's speech will be scrutinized for clues about how the Fed intends to balance the risks of slowing growth with lingering price pressures.
On the political front, pressure is mounting on Powell. President Donald Trump has again criticized him for not moving faster to cut rates, accusing the Fed of holding down the housing market.
At the same time, Trump has been active in the geopolitical arena, urging Russian President Vladimir Putin and Ukrainian President Volodymyr Zelenskiy to be more "flexible" as he seeks to arrange a bilateral summit to speed up peace efforts.
Market Summary: With expectations of a rate cut already high, the tone of Powell's speech in Jackson Hole could trigger big moves in Treasury bond markets, the U.S. dollar and other riskier assets. Traders are advised to prepare for significant volatility ahead of Friday, as this speech has the potential to determine not only the September outcome, but also the direction of Fed policy through 2026.
