Jackson Hole Symposium: How Markets Have Responded to Powell’s Speeches Over Time

As usu­al, the Jack­son Hole Eco­nom­ic Sym­po­sium attracts glob­al investors and econ­o­mists to Grand Teton Nation­al Park, await­ing crit­i­cal insights into U.S. mon­e­tary pol­i­cy from the Fed­er­al Reserve Chair’s speech on Friday.

His­tor­i­cal­ly, these speech­es have remark­able influ­enced mar­ket behav­ior. Jerome Pow­ell has uti­lized this plat­form to hint at poten­tial pol­i­cy changes, with pre­vi­ous address­es result­ing in notable mar­ket fluc­tu­a­tions. Glob­al ana­lysts cur­rent­ly antic­i­pate that Pow­ell might sig­nal a pos­si­ble inter­est rate cut for Sep­tem­ber. Any devi­a­tion from these expec­ta­tions could impact the recent recov­ery of the stock mar­ket and more.

Over the last 20 years, the S&P 500 has gen­er­al­ly returned 0.4% dur­ing the con­fer­ence, accord­ing to Dow Jones Mar­ket Data. After the con­fer­ence, the index typ­i­cal­ly gained 0.1% in the fol­low­ing month and 1.8% over the next three months.

Remarks from Fed chairs have some­times led to large mar­ket reac­tions. For instance, on August 26, 2022, the S&P 500 fell 3.4% after Jerome Pow­ell dis­ap­point­ed investors by sug­gest­ing that the Fed’s rate hikes might con­tin­ue longer than expected.

In August 2018, Pow­ell’s inau­gur­al Jack­son Hole address was one of the piv­otal moments. At that time, the Fed­er­al Reserve was in the midst of its first tight­en­ing cycle since the glob­al finan­cial cri­sis. Powell’s speech, titled “Mon­e­tary Pol­i­cy in a Chang­ing Econ­o­my,” empha­sized a shift towards rely­ing on cur­rent eco­nom­ic obser­va­tions rather than the­o­ret­i­cal mod­els. Powell’s hawk­ish stance on inter­est rates, amidst ris­ing infla­tion, led to a mod­est mar­ket reac­tion. The S&P 500 index rose by 0.6% fol­low­ing his speech, reflect­ing a mar­ket large­ly in align­ment with Powell’s approach.

How­ev­er, the 2019 Jack­son Hole sym­po­sium saw a stark­ly dif­fer­ent response. Pow­ell addressed “Chal­lenges for Mon­e­tary Pol­i­cy” amidst grow­ing trade ten­sions and a slow­ing econ­o­my. By this time, the Fed had already begun reduc­ing rates, and Powell’s speech sig­naled fur­ther cuts. Despite this dovish tilt, the S&P 500 fell by 2.6%, reflect­ing investor dis­ap­point­ment with the pace of the Fed’s actions and exter­nal pres­sures from then-Pres­i­dent Trump’s trade poli­cies. This drop high­light­ed the market’s sen­si­tiv­i­ty to both pol­i­cy sig­nals and geopo­lit­i­cal tensions.

The year 2020 brought unprece­dent­ed chal­lenges with the onset of the COVID-19 pan­dem­ic. Powell’s vir­tu­al address, “New Eco­nom­ic Chal­lenges and the Fed’s Mon­e­tary Pol­i­cy Review,” intro­duced a new frame­work empha­siz­ing inclu­sive employ­ment and an aver­age infla­tion tar­get. His speech aimed to address the eco­nom­ic fall­out from the pan­dem­ic and sig­naled a shift towards a more accom­moda­tive mon­e­tary pol­i­cy. The mar­ket’s response was rel­a­tive­ly mut­ed, with the S&P 500 ris­ing by only 0.2%. This was a peri­od of extreme uncer­tain­ty, and the mar­kets were still adjust­ing to the Fed’s new approach and the evolv­ing eco­nom­ic landscape.

In 2021, Powell’s speech focused on “Mon­e­tary Pol­i­cy in the Time of COVID,” amid a rapid­ly recov­er­ing econ­o­my and surg­ing infla­tion. Pow­ell main­tained that infla­tion was tran­si­to­ry and not yet a cause for imme­di­ate pol­i­cy changes. His address came at a time when the Fed’s bond-buy­ing pro­gram and low rates were still in place. The S&P 500 expe­ri­enced a pos­i­tive reac­tion, ris­ing by 0.9%, as investors antic­i­pat­ed con­tin­ued sup­port from the Fed despite infla­tion­ary pres­sures. This peri­od was char­ac­ter­ized by a recov­ery fueled by gov­ern­ment spend­ing and mon­e­tary stimulus.

The 2022 Jack­son Hole sym­po­sium marked a turn­ing point. Powell’s speech, “Mon­e­tary Pol­i­cy and Price Sta­bil­i­ty,” took a more aggres­sive stance against infla­tion, which had surged to lev­els not seen since the ear­ly 1980s. Powell’s unam­bigu­ous mes­sage of con­tin­u­ing with rate hikes until infla­tion was under con­trol led to a sig­nif­i­cant mar­ket reac­tion. The S&P 500 dropped by 3.4% in response to Powell’s res­olute stance, reflect­ing investor anx­i­ety about the poten­tial eco­nom­ic impact of aggres­sive rate hikes. This speech under­scored the mar­ket’s sen­si­tiv­i­ty to pol­i­cy shifts when infla­tion­ary con­cerns dominate.

Look­ing ahead to August 2024, Powell’s upcom­ing Jack­son Hole address is antic­i­pat­ed to address the cur­rent eco­nom­ic cli­mate, which fea­tures a mix of cool­ing infla­tion and ongo­ing reces­sion con­cerns. Mar­ket expec­ta­tions are high, with many ana­lysts pre­dict­ing Pow­ell will hint at poten­tial rate cuts. This antic­i­pa­tion is based on the recent mod­er­a­tion in infla­tion and slow­er eco­nom­ic growth. The market’s cur­rent posi­tion­ing reflects a cau­tious opti­mism, with expec­ta­tions of a mod­est rate cut being a key topic.

His­tor­i­cal­ly, Powell’s speech­es at Jack­son Hole have elicit­ed var­ied respons­es from the mar­ket. The 2018 speech was received pos­i­tive­ly, reflect­ing align­ment with Powell’s pol­i­cy direc­tion. In con­trast, the 2019 and 2022 address­es saw more pro­nounced neg­a­tive reac­tions, dri­ven by exter­nal fac­tors and con­cerns about infla­tion and eco­nom­ic sta­bil­i­ty. The 2020 and 2021 speech­es, amidst pan­dem­ic uncer­tain­ties and eco­nom­ic recov­ery, had more mut­ed mar­ket respons­es, indi­cat­ing the market’s adap­ta­tion to evolv­ing eco­nom­ic policies.

And, to the extent that we trust in these prece­dents, Pow­ell’s loom­ing speech is set to act as an essen­tial indi­ca­tor of future mon­e­tary pol­i­cy, with poten­tial mar­ket volatil­i­ty if his sig­nals devi­ate from expec­ta­tions or exter­nal eco­nom­ic pres­sures emerge.