Bank of America expects the upcoming Jackson Hole symposium to be a pivotal moment for US rates, with Fed Chair Powell likely signaling a future rate cut while maintaining flexibility. The risks, however, lean toward a more hawkish tone, potentially strengthening the USD.
Key Points:
Jackson Hole Focus:
- The symposium is expected to be a key event for determining the direction of US rates.
- Fed Chair Powell is likely to indicate that the next move will be a rate cut, but will also emphasize flexibility depending on future economic data.
Powell’s Expected Stance:
- Powell is expected to avoid committing to specific actions, instead keeping all options on the table ("not ruling anything in or out").
- This cautious approach allows the Fed to respond dynamically to evolving economic conditions.
Potential Market Impact:
- The impact on the USD might be limited if Powell maintains a balanced approach.
- However, the risks are skewed toward more hawkish communication, which could lead to higher US rates and a stronger USD.
- Any indication that large rate cuts are off the table could also contribute to a risk-off sentiment, further boosting the USD.
Conclusion:
BofA sees the potential for a more hawkish tone from Fed Chair Powell at the Jackson Hole symposium, with a focus on retaining flexibility in future rate decisions. This could lead to higher US rates and a stronger USD, especially if Powell avoids signaling an imminent rate cut or downplays the likelihood of large cuts.
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