Strategists Reflect on Powell’s Jackson Hole Speech that Crashed Stock Market on Friday

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The stock market was at the center of investor attention on Friday after the much-awaited speech by Fed Chair Jerome Powell at the Jackson Hole conference.

Powell warned of “some pain” to the U.S. economy as the Fed continues to act aggressively in a bid to tame decades-high inflation. The central bank will “use our tools forcefully” to bring down inflation, Powell said.

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain,” Powell said.

Powell was clear – at this moment, fighting inflation is a bigger priority for the Fed than supporting growth and worrying about the recession.

Here is how several Wall Street strategists saw Powell’s speech on Friday.

Bank of America’s Michael Gapen: “We expected the main message coming out of Jackson Hole to be that conditions now required “higher for longer” policy rates. In this regard, the message from Jackson Hole met our expectations… We expect a 50bp rate hike in September, though strong August employment could tip the balance in favor of a 75bp hike. We continue to believe a hard landing is more likely than a soft landing and maintain our outlook for a mild recession.”

Credit Suisse’s Fahad Tariq: “The key takeaway from Mr. Powell’s speech, for us, is that a Fed pivot (i.e. change from a hawkish to dovish stance) seems unlikely anytime soon… Higher nominal rates coupled with moderating inflation (even if still well above the Fed’s 2% target) will likely lead to lower gold.”

Morgan Stanley’s Ellen Zentner: “The Chair certainly did not break any new ground but the speech underscored the Fed’s firm commitment to stay the course on inflation. We maintain our current base case of a 50 bps rate hike in September, but we now see very substantial upside risks, all depending on the August CPI print to be released on September 13.”

HSBC’s Ryan Wang: “Our forecast is that the FOMC is likely to decide on rate hikes of 50bp in September, 50bp in November, 25bp in December, and 25bp in February 2023, taking the federal funds target range up to 3.75-4.00%. We expect to see signs of softening labor market conditions over the remainder of this year. This could include a reduction in the number of job vacancies, a higher unemployment rate, and a deceleration in the pace of wage growth, leading the FOMC to stop raising policy rates in the early part of next year.”