Bears are active this week as markets prepare for Friday’s speech from Fed Chair Jerome Powell. He will be speaking at the annual Economic Symposium amongst other central bankers and influential financial personas from across the globe. The biggest focus of the speech will be on where the United States central bank stands on monetary policy, especially after the latest developments in the U.S. unemployment rate and the decline in inflation.
The U.S. unemployment rate has accelerated to 4.3% in the last two months, the highest level since 2021. Heightened interest rates have slowed hiring and increased lay-offs, which The Fed acknowledged was to happen; but if they leave rates unchanged for too long then they risk leading the U.S. into a recession. Powell’s tone will be closely watched during the speech, with markets looking for an optimistic outlook, especially one that promises an interest rate cut this September.
The optimism may come from the recent CPI report, which reflected a decline in inflation to 2.9%, the lowest reading since 2021. This brings the number closer to The Fed’s 2% target, helping reinforce a rate cut next month.
What does it mean for the stock market?
The bounce stocks have seen since the August lows was nearly vertical, so buyers are holding their breath ahead of Powell’s speech tomorrow, because his speech may be the trigger for the rally to continue or sell back down. Powell is good at keeping a calm composure during his speeches, and doesn’t often surprise markets. So we expect him to reinsure markets that The Fed is doing everything they can to bring down inflation, and that they will rely on economic data to determine if a rate cut is appropriate in September.