Fed Chairman Jerome Powell is expected to strike a dovish tone in his highly anticipated speech at the Jackson Hole symposium on Friday.
But market analysts warn that Powell's speech may fall short of answering fundamental questions and leave investors uncertain about the future direction of U.S. monetary policy.
John Velis, a strategist at BNY Mellon, underscored the delicate balance Powell must strike in a note ahead of the symposium. “We expect Powell to sound dovish, but we don’t expect the speech to get bogged down in details. Key questions about the size of the first rate cut or the frequency or length of the rate cut cycle are unlikely to be answered,” he said.
This cautious approach could risk disappointing market participants who are looking for clear guidance on the Fed's next moves.
Velis is predicting a 25 basis point rate cut in September, which is in line with the general market sentiment. However, he also noted that the August employment report, which will be released before the Federal Open Market Committee (FOMC) meeting, could significantly affect the Fed's decision. A weaker than expected employment report could lead to a more aggressive 50 basis point rate cut.
Market expectations for a September rate cut have recently risen, driven by a series of economic data suggesting slowing growth. This has led to increased interest in high-interest dollar deposits as investors try to navigate the changing interest rate environment.
Although the Fed has not officially announced a rate cut, some banks have already started to reduce their dollar deposit rates. In addition, performance metrics for some dollar-denominated asset management products have also declined compared to previous periods. Industry experts warn that the increasing possibility of a Fed rate cut points to a potential downward trend in dollar deposit rates.
*This is not investment advice.
