The Jackson Hole Economic Symposium, hosted by the Federal Reserve from August 22nd to 24th, is a highly anticipated event for financial markets. Investors will be keenly focused on Fed Chair Jerome Powell’s speech scheduled for Friday, August 23rd, at 10 a.m. ET. This speech is expected to provide crucial insights into the Federal Reserve’s upcoming policy decisions, particularly regarding the anticipated interest rate cut in September.
The market consensus leans towards the Federal Open Market Committee (FOMC) delivering its first rate cut since March 2020 at the September 18th meeting. This expectation was hinted at by Powell during the July FOMC meeting and is currently fully priced in by market participants. However, the magnitude of the rate cut remains uncertain. Recent robust economic data has shifted the odds towards a smaller 25-basis-point reduction rather than a more substantial 50-basis-point cut. According to Fed futures, as tracked by the CME Group’s FedWatch tool, there is a 77.5% probability of a 25-basis-point cut, compared to a 22.5% chance of a larger 50-basis-point cut.
Looking beyond September, markets are also anticipating another 25-basis-point cut in November, followed by a more significant 50-basis-point cut in December.
Historically, the Jackson Hole Symposium has played a significant role in influencing market performance, particularly impacting the S&P 500 index. An analysis of the past 10 Jackson Hole events reveals that the S&P 500’s performance during the symposium days (Thursday and Friday) has been relatively flat, with an average decline of 0.4% and a median return of 0%. When considering the entire week, the major stock market index shows a modest average gain of 0.4%, with the median performance slightly better at 0.8%. Over the past 10 events, the S&P 500 recorded positive returns in six instances over the two-day window and in seven instances over the entire week.
In 2022, the S&P 500 plunged 3.4% between Thursday and Friday after Powell emphasized the Fed’s commitment to combating inflation through continued rate hikes, even at the risk of economic pain. Markets interpreted his comments as more hawkish than expected, leading to a 4% decline in the S&P 500 over the entire week as investors became concerned about the impact of prolonged higher interest rates on economic growth and corporate earnings.
In 2019, Powell’s speech focused on navigating the U.S. economy amid global trade tensions, particularly the U.S.-China trade war. However, his remarks lacked clear forward guidance on future Fed actions, which led to market uncertainty. The S&P 500 dropped 2.9% during the symposium days and declined 1.4% over the week, reflecting concerns over the unclear direction of monetary policy amid rising global risks.
In August 2015, with the Fed debating the timing of its first interest rate hike since the financial crisis in 2008, discussions at the symposium centered on global economic conditions and their implications for U.S. monetary policy. Fed Vice Chairman Stanley Fischer hinted that the Fed might be closer to raising rates, depending on economic data. The S&P 500 reacted positively, gaining 2.43% during the symposium days and 0.8% over the week, as markets were encouraged by the Fed’s cautious approach to rate hikes.
