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Aug. 23, 2022, 9:39 a.m. EDT

Fed Jackson Hole preview: Powell to stress a recession won’t stop Fed’s fight against high inflation

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By Greg Robb

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Stephen Stanley, chief economist at Amherst Pierpoint, said he expects Powell to take a broader perspective and not focus on the next policy meeting.

“If I were him, I would not center my speech on whether I’m going 50 or 75 in September,” Stanley said.

Fed officials who have spoken in the last two weeks have said the size of the September rate rise depends on the data and there will be another round of monthly data between Jackson Hole and the Fed meeting in late September, he said.

See : Fed’s Bullard says he is leaning toward backing 0.75 percentage point hike in September

Instead, Stanley said he expected Powell to highlight the idea of a “pause and hold” or the idea that there will be a long interval of time between the last rate hike and the first rate cut.

Economists were pretty clear about what else Powell won’t do.

Stanley said Powell would not send the message that inflation is going to persist for longer than expected.

“I just don’t know that is a wise thing for any Fed official to ever get in front of people and say inflation is going to stay high for longer than you think. It just doesn’t seem like a good look” particularly as the central bank wants to keep down the public’s long-run inflation expectations, Stanley said.

A lot of the market commentary in the run-up to Jackson Hole has focused on the recent gains in the U.S. stock market /zigman2/quotes/210598065/realtime DJIA +0.45% /zigman2/quotes/210599714/realtime SPX -0.03% which has seemingly been based in part on a view that the Fed will be cutting rates as soon as next year. The yield on the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.18% has risen to just below 3%.

Crandall said it would be a “cold day in hell” before Powell would try to talk stocks lower.

Tim Duy, chief U.S. economist at SGH Macro Advisors, said he detected a “growing suspicion in markets that the Fed will declare victory at 3.5% inflation.” So, in a sense, Powell’s message will be aimed at countering such doubts.

Several economists said that the market has to start focusing on the longer-term battle with inflation.

Avery Shenfeld, chief economist of CIBC World Markets, said the markets seem to be hoping for “some combination of continued growth to support earnings, but lower inflation that convinces the central bankers to ease off.”

Shenfeld said there is a path for a soft landing – sharply lower inflation in 2023 without a recession, but he said the Fed isn’t as concerned about 2023 as it is about the outlook for consumer prices in 2024.

“The Fed’s concern during 2023 will be whether the conditions will be in place to keep inflation low in 2024,” he said.

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BX : Tullett Prebon
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