Jerome Powell is set to speak at the Federal Reserve’s Jackson Hole summit on August 22. Morgan Stanley suggests he may lower expectations for a 50 basis point rate cut in September, which could disappoint the markets. Some experts think he might oppose any rate cuts, which could also cause frustration. Alternatively, he may not challenge existing expectations, leading to disappointment before the September meeting. Morgan Stanley Wealth Management emphasizes that the views of Federal Reserve officials on market expectations are crucial before the September policy meeting. If they believe the market has gotten it wrong, they might publicly address it. Officials against a near-term rate cut are likely to share their opinions.

Powell’s Upcoming Speech

All eyes are on Powell’s speech at the yearly Jackson Hole symposium, seen as important as a policy meeting. Morgan Stanley thinks Powell will keep the door open for a September cut but clarify that a 50-basis-point cut is unlikely. While a 25-basis-point reduction is still expected, Powell may try to ease hopes for a larger cut. The Jackson Hole Economic Policy Symposium runs from August 21 to 23, 2025. Powell’s August 22 speech creates notable uncertainty, especially since market fear, measured by the VIX, has risen from 14 to 19 last month. This indicates traders are preparing for potential market shifts. Even a hint from Powell could significantly impact markets in the upcoming weeks. Current markets reflect this uncertainty. As of today, derivatives markets suggest a 70% chance of a 25-basis-point cut in September, while there’s still a 15% chance for a more aggressive 50-basis-point cut—something the Fed might want to downplay. Recent data is causing the Fed to be cautious about indicating any significant cuts. The July Consumer Price Index came in at a stubborn 2.8%, and the unemployment rate rose to 4.1%. This mixed data gives Powell the ability to let down those expecting a strong signal for aggressive easing.

Market Strategies and Historical Context

With the nature of Powell’s upcoming speech being binary, a strategy for traders is to buy volatility. They are considering options strategies like straddles or strangles on indices such as the S&P 500. This allows them to profit from significant price movement in either direction without needing to predict whether Powell will be hawkish or dovish. For those betting that Powell will resist rate cuts, purchasing protective puts is a more direct strategy. This acts as a safeguard against a potential market drop if his comments are perceived as hawkish. In essence, it’s a bet that Powell will disappoint markets by ruling out a September cut. We recall Powell’s speech at Jackson Hole in August 2022, where his clear message about tackling inflation led to a sharp drop in stocks. This past experience hints that a hawkish surprise is a real possibility and should be prepared for. The market learned then not to underestimate Powell’s determination. Even if Powell signals the expected 25-basis-point cut, it might trigger a “sell the fact” reaction. As this cut is already somewhat reflected in market pricing, the confirmation could lead to profit-taking. This suggests that even the most anticipated outcome might not generate the rally that some traders hope for. Create your live VT Markets account and start trading now.

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