Jackson Hole Symposium Preview

Markets have been in a holding pattern in anticipation of the Fed's summer retreat, but will there be a major change announced?
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What everyone's thinking

There has been ample speculation that the Jackson Hole Symposium provides an opportunity for the Fed to give the markets some advance look at what the "pivot" will look like. With the looming threat of an official recession, at some point, the Fed will stop hiking as aggressively. And might even start lowering rates.

Many FOMC members have expressed that they believe the "neutral rate" is close, and from the last minutes, it was clear that the Fed was starting to think about moderating the pace of tightening. Though it appears that some, more optimistic, portions of the market initially misread the discussion in the minutes about the risk of a recession, thinking that the Fed would be less hawkish. The post-rate commentary showed that in reality what the members were saying is that they were accepting the reality that the risk of a recession was increasing, but that it was necessary to deal with inflation.

What else could happen

Given the strength of the comments from many FOMC members immediately after the minutes release, Powell could instead use the Symposium as a platform to double down on the idea of tightening. Not that there would be an actual change in policy, but to firm up expectations.

Powell is, at the bottom of it, a New Keynesian, meaning he believes that inflation is influenced by the expectation that the Fed will keep it under control. Hence his repeated use of the phrase, & "anchor inflation expectations". An important part of maintaining the Fed's & "credibility" in fighting inflation would be to show no hesitation to take on inflation.

The market seems unsure about which of those versions is the most likely, so there could be quite a bit of volatility through the rest of the week as the Symposium plays out.

EURUSD could bounce

EUR/USD crashed to $0.9900 on Wednesday, continuing its long-term descent below the $0.9950 low reached in July. The RSI divergence could provide bulls an opportunity to recapture $1.0000, and move higher. $1.0100 is major near-term resistance being the 61.8% Fibonacci of the $0.9950-$1.0370 leg. On the downside, $0.9790 is the 138.2% Fibonacci of the same leg. Between now and then, short-term supports can be seen as the round levels of $0.99900, $0.9850, and $0.9800.

Key takeaways

There has been speculation that the Jackson Hole Symposium provides an opportunity for the Federal Reserve to give financial markets a preview of its pivot. At the last minutes & release most members felt that the neutral rate was close enough that they could begin to moderate the pace of tightening. However, it initially seemed like everyone discounted the part where the Fed talked about the risk of recession. Powell could use the JHS as a platform to double down on expectations that the Fed will tighten. How the market interprets it could add to volatility.