Esther George, John Williams and Jerome Powell, in Jackson Hole, Wyoming, on August 24, 2018.
David A. Grogan | CNBC
Federal Reserve efforts to reverse its easy policy will be a key issue for next week’s markets as central bankers meet in Jackson Hole, Wyoming.
Central bankers may even seem relaxed against the backdrop of the Grand Tetons in the crisp air of late August. But they will be under pressure to move gently towards less policy support, without creating any market rage.
Federal Reserve officials, in numerous recent speeches and interviews, have already managed to accelerate expectations of when they could begin to slowly reduce their $ 120 billion a month in bond purchases. More is expected from this talk at its annual symposium, which begins Thursday.
The Fed Chairman’s speech is usually the highlight of the annual event and several Fed chairs have used Jackson Hole to send important messages. The question is whether Jerome Powell will channel his speech Friday morning to provide more details on how the Fed could begin to undo the bond purchase, and even whether he is personally willing to accept it.
“We don’t expect much political revelation at this meeting,” said Mark Cabana, head of U.S. short strategy at Bank of America. “I don’t think Powell wants to deal with [September] meeting, given the infinity of voices that exist. I don’t think that’s when Powell really wants to take a shot. “
In addition to the Fed, the week has some economic reports. Existing home sales are released Monday; new home sales Tuesday and Wednesday of durable goods. On Friday, there are data on personal consumption spending and the inflation index, closely monitored by the Fed.
Profits from companies like Best Buy and Nordstrom are also expected on Tuesday, Salesforce.com on Wednesday and HP and Dell Technologies on Thursday.
Fed and markets
But the Fed will matter more, as investors will also monitor how the economy responds to the spread of the Covid delta variant. Shares were lower last week, with the S&P 500 falling 0.6%.
There could be some volatility surrounding the Fed symposium, following the launch this past Tuesday of minutes from the last official meeting that disturbed investors. The acts described most members of the Federal Open Markets Committee as prepared to shrink this year if the economy is strong enough. Cabana said he changed his mind after that release and now expects the Fed to start amortizing purchases in November, rather than January.
“We just think that signal in communications is pretty clear,” he said. “For now, it’s safe to say they want to start later this year and we think the data will allow them to do that.”
As for Powell, “he will not announce the reduction in volume. What we anticipate is that he will make a live speech that will talk about many of the progress that has been made since the beginning of Covid, and there are many,” he said. dir Cabana. He said Powell could reiterate that the Fed will depend on data in its decision to shrink and that many Fed officials believe it could move far enough toward that goal by the end of this year.
The minutes caused problems in the markets as investors reacted to the idea that the Fed would take its first steps to eliminate the extraordinary amount of policy it used to combat the impact of the pandemic. The reduction in the bond program may take months, but once completed, it could herald the emergence of rate hikes.
Diane Swonk, chief economist at Grant Thornton, said Powell should provide a roadmap on how the Fed will shrink, but with the warning that it can take a step back if Covid becomes more serious than expected.
“Asset purchases initially had to stabilize financial conditions. … Clearly there is a stronger consensus than even at the last meeting in July, given how [Fed officials] “Since then,” Swonk said. “They want to end up buying assets. As they unload them, they don’t brake. They just lift their foot off the accelerator. The difference is important for [Powell] to get out on Jackson Hole “.
Swonk said the Fed should provide a roadmap to reduce volume, but also with exit ramps in case Covid is worse than expected.
“To prevent this from becoming a rage and prevent financial markets from taking advantage again, he wants to get the messaging and context out as much as possible,” Swonk said. “If this becomes a messy reaction and things melt, they should pivot. Where we stand is that such purchases are no longer justified and can be detrimental to the amount of liquidity they put into financial markets when it is no longer necessary “.
Calendar of the week in advance (schedules in ET)
Monday
Earnings: JD.com, Palo Alto Networks, Madison Square Garden
10 am Sales of existing homes
Tuesday
Earnings: Best Buy, Bank of Montreal, Nordstrom, Intuit, Urban Outfitters, Toll Brothers, Advanced Auto Parts, Medtronic
10 am Sales of new homes
Wednesday
Earnings: Salesforce.com, Royal Bank of Canada, Snowflake, Box, Autodesk, Express, Dick Sporting Goods, Carnival Shoes, NetApp, Splunk, Pure Storage
8:30 am Durable products
Thursday
Earnings: HP, Dell, Gap, Abercrombie and Fitch, Dollar General, Dollar Tree, Hain’s Celestial, Ulta Beauty, Peloton, Workday, VMWare, Ollie’s Bargain, Marvell, Toronto-Dominion, Sanderson Farms
8:30 am Unemployment claims
8:30 a.m. Second quarter GDP
Friday
Earnings: Great lots
8:30 am Personal income and expenses
8:30 a.m. Advanced trade
10 am Consumer spending (last August)