On the eve of the Jackson Hole meeting, Federal Reserve officials are singing dovish tunes! They are all advocating for an early rate cut

According to the Wise Finance APP, on the eve of the Jackson Hole Global Central Bank Annual Meeting, several Federal Reserve officials expressed the view that the Fed should start the rate-cutting process as soon as possible, and that the subsequent rate cuts should maintain a "gradual" and "orderly" policy pace.

Boston Fed President Susan Collins recently used the above dovish terms frequently in media interviews, while Philadelphia Fed President Patrick Harker also used similar language in interviews, but neither of these officials provided a more precise explanation of the significance of these terms for the frequency of cuts. Mary Daly, President of the San Francisco Fed, expressed support for a gradual pace of rate cuts by the Fed, emphasizing that gradual does not mean weak, slow, or lagging behind—it simply represents a cautious stance.

Investors have been expecting the Fed to start a rate-cutting cycle in September for weeks, with the interest rate futures market pricing in almost a 100% chance of a September rate cut by the Fed, and investors have begun to shift their focus to what will happen afterwards. Currently, the interest rate futures market is betting that by the end of this year, the Fed may cut rates by a total of 75 or 100 basis points, with a higher probability of a 75 basis point cut.

The Goldman Sachs economics team stated in a recent report: "Given the data released thereafter, we expect Powell to express stronger confidence in the inflation outlook than he did at the news conference after the July Fed FOMC meeting, and to emphasize more the downside risks to the labor market."

Goldman's rate cut expectations are broadly in line with market expectations: a 25 basis point cut at each of the next three meetings, followed by further policy easing in 2025, ultimately lowering the federal funds rate by about 2 percentage points—this policy path is expected to be very broadly outlined by Powell at the Jackson Hole meeting.

Fed official Collins stated in her speech that officials should proceed gradually when starting to ease, emphasizing that she has not seen any "major danger signals" in the economy. The Boston Fed President said she is committed to "maintaining a healthy labor market while the Fed continues to fight inflation."

"This is the background I believe the Fed will soon begin to ease monetary policy, with our focus shifting to the labor market," Collins told the media before the annual symposium held by the Kansas City Federal Reserve Bank at Grand Teton National Park.

Fed Chair Powell stated at the press conference after the last rate decision that as inflation has dropped significantly from its peak during the pandemic, officials are now more focused on the other side of the dual mandate, which is to prevent undue harm to the U.S. labor market. In other words, the number of non-farm payrolls and the unemployment rate in the U.S. are currently the most closely watched data by the Fed, so a weak U.S. labor market will undoubtedly prompt the Fed to start a rate-cutting cycle in September, with some analysts believing that the Fed's rate cut in September is only a matter of the Fed's official announcement.

Harker stated, "In September, we need to start lowering rates." "But we need to start tapering them in an orderly fashion." Regarding whether the Fed's first rate cut in September will be 25 basis points or 50 basis points, Harker added that before deciding whether to cut rates by 25 or 50 basis points next month, he hopes to receive more data information In contrast, Jeffrey Schmidt, President of the Kansas City Fed, stated that he is not yet ready to support a rate cut for this event.

"For me, it makes sense to carefully study some of the data that will be released in the coming weeks," he said in an interview. "Before we take action - at least before I support taking action or recommend taking action, I think we need to see more data."

Atlanta Fed President Stick, who has maintained a hawkish stance this year, recently stated that an early rate cut is appropriate, and waiting too long to cut rates "does indeed pose risks." He personally holds an "open" attitude towards a rate cut in September.

San Francisco Fed President Daly stated that recent economic data has given her confidence in controlling inflation. She emphasized that it is time to consider lowering the benchmark interest rate from the current range of 5.25%-5.5%.

It is worth noting that the minutes of the Fed's policy meeting on July 30-31, released on Wednesday, showed that "several" Fed officials believed that the rate cut last month was reasonable, while the "vast majority" of Fed officials believed that it would be appropriate to start easing monetary policy at the next meeting on September 17-18.

Labor market shows "orderly cooling"

Three Fed officials recently stated that the preliminary downward revision by the Labor Department of the annual non-farm employment figures as of March 2024 has not changed their positive view of the U.S. economy. The U.S. Bureau of Labor Statistics stated on Wednesday that the preliminary revision for the one-year period ending in March showed a decrease of 818,000 new jobs, the largest decrease in fifteen years.

Schmidt emphasized, "Although this is a seemingly large number, it does not really change my positive view of the U.S. economy when I consider monetary policy."

Collins stated that recent economic data shows that the economy overall is still in good shape. She mentioned that the inflation rate has dropped significantly, providing more confidence in the Fed's 2% inflation target.

Collins pointed out that although the unemployment rate has risen to 4.3% in July, it is still relatively low historically, and labor force participation is high. She emphasized that while business hiring has slowed down, the scale of layoffs has not increased, indicating that the labor market is showing orderly cooling rather than directly entering a downturn.

"I do think it is becoming important to recalibrate monetary policy, but I hope the policy shift will be gradual and incremental," she added. "I believe there is no preset benchmark path."

Fed officials' attitudes soften successively, will Powell turn dovish at the Jackson Hole meeting?

Investors will closely watch the keynote speech by Fed Chairman Powell at the Jackson Hole central bank symposium on Friday, especially focusing on Powell's expected pace and steps for rate cuts by the Fed.

For the global stock markets that experienced a "super rebound" last week, the Jackson Hole central bank symposium held on Friday night Beijing time will be a "key test." Fed Chairman Powell and other policymakers, including Bank of England Governor Bailey, will deliver important speeches. During last Friday's trading hours, the options market priced in over 1% high volatility for the S&P 500 index this Friday, betting that the benchmark index will experience volatility exceeding 1% regardless of whether it rises or falls "If traders hear the heavyweight signal of an upcoming rate cut, the stock market will react positively," said Eric Bailey, Managing Director of Wealth Management at Steward Partners Global Advisory. "However, if traders and investors do not hear the positive information they want to hear, the stock market, after experiencing a big rebound, may face massive selling."

It is reported that Evercore ISI, a Wall Street investment institution that predicts the S&P 500 index is expected to surge towards 6000 points by the end of the year, has recently released another heavyweight forecast report. This institution predicts that Federal Reserve Chairman Jerome Powell will indicate at the global central bank symposium in Jackson Hole this week that while considering lowering the benchmark interest rate, Fed policymakers will also consider whether to cut rates by 50 basis points.

Evercore's judgment on Powell's speech at the Jackson Hole meeting appears more aggressive compared to the general expectations on Wall Street. Most Wall Street analysts expect Powell to at most hint that the Fed is considering a rate cut, while remaining vague on other aspects.

Many Wall Street investment institutions still predict that when Powell speaks on Friday, he may easily remain silent on the timing of a rate cut, or keep mum on the "timing of a rate cut" that the market expects, only indicating that the Fed has included rate cuts in its considerations. Moreover, in the past few years at central bank meetings, Powell has often chosen to play the role of a "riddle man," adopting a cautious and non-committal attitude to cautiously reveal how high interest rates might reach during the Fed's rate hike cycle, which also fits his character.

Bill Dudley, former President of the Federal Reserve Bank of New York, said that Fed Chairman Powell may suggest that overly tight monetary policy is no longer needed. However, he expects Powell not to hint at the magnitude of the first rate cut and the specific timeline, especially because an extremely important non-farm payroll and unemployment report will be released on September 6, providing Fed policymakers with a more comprehensive assessment before making the next policy decision on September 18