Wall Street Reacts To Powell’s Brief Jackson Hole Speech

Powell’s J-hole speech was a paltry 1,301 words and was over in just about 8 minutes, far below the 30 minutes scheduled, and despite the remarkable brevity, it still left Wall Street with conflicting views about what he said: the doves said it was not hawkish enough, while the hawks pointed to Powell’s warning that pain lies ahead for households and businesses due to “higher interest rates, slower growth, and softer labor market conditions.”

And while the market tries to find the correct level now that Powell is done with kneejerk moves first lower, then higher, and now lower again, below we excerpt from some of Wall Street’s first notable reactions to Powell’s speech:

• Dennis DeBusschere, founder of 22V Research: “This is not game-changing hawkish. At all. His comments are just making it clear that inflation still needs to slow and they will continue to push back against easier financial conditions until mission accomplished — or they think mission accomplished.“
• Neil Dutta of Renaissance Macro: “Powell is being more upfront about the pain required to bring inflation to the Fed’s longer run objectives.‘Reducing inflation is likely to require a sustained period of below-trend growth.”
• Bloomberg Economics’ Anna Wong: “Well that was quick! Powell was expected to speak for 30 minutes but in the end took the mic for just 10. The most hawkish part of his speech was that the soft July inflation reading won’t sway the Fed. The bottom line is that the tight labor market and wage-growth momentum will keep the central bank in inflation-fighting mode.”
• BMO’s Ian Lyngen: “Powell’s comments were remarkably in line with market expectations. He emphasized that the size of the September rate hike hinges on the ‘totality’ of the data — this is telling in two regards 1) there will be a hike (which was a given) and 2) July’s inflation data isn’t enough to take 75 bp off the table — so the debate remains 75 vs. 50 at least until we see the September 13 release of August’s CPI.”  
  “In the wake of Powell, the flattening response aligned with the commitment from the Chair to continue tightening… as the market digests the headlines and trading volumes thin out, we’ll be looking for month-end duration needs in the week ahead to add to the flattening trend.”
• Oppenheimer’s Alon Rosin: “Whole Lot of nothing new!!?? Relief, no moves..yesterday priced that in??”
• Sameer Samana at Wells Fargo Investment Institute: “Powell did exactly what was needed, which was emphasizing that it would take time with rates in restrictive territory to solve inflation, and to push back on this notion of a pivot early next year Markets should remain volatile for the foreseeable future, until such time that additional progress is made on either inflation coming down or markets offer much cheaper valuations.”
• Mark Cabana, head of Rates Strategy at BofA: “The rates market initially saw the speech as hawkish and forceful in its commitment to restore price stability. However, this move subsequently retraced given the limited explicit guidance from Powell.”
•  Max Gokhman, chief investment officer for AlphaTrAI: “Bull-hunting season is open at Jackson Hole, but so far all Powell and the rest of the Fed have been able to do is spook the herd by using low-caliber academic language that just doesn’t have the firepower of speaking plainly about policy that’s going to be restrictive for far longer than expectations.”
• Bryce Doty at Sit Investment Associates: “it’s hard to believe the Fed’s ‘Damn the Torpedoes’ approach toward thinking the key to stopping inflation is to raise rates enough to destroy jobs. Just means shortages will continue. The labor market might be considered strong, but it’s certainly not healthy.”
• Michael Pearce, economist at Capital Economics:  “Powell’s speech was concise by Jackson Hole standards and hawkish throughout…. That appears to be part of a coordinated push from recent Fed speakers against the idea that the Fed is close to pivoting and will quickly turn attention to cutting rates again.”
• Zhiwei Ren at Penn Mutual: “Powell mentioned his willingness to tolerate a softer labor market and economy to achieve the inflation mandate. He cautioned the risk of ‘prematurely’ loosening. He also said restoring price stability will likely require maintaining a restrictive policy stance for some time. This is him pushing back the market pricing in rate cuts in 2023.”  
• George Concalves, rates strategist at Mitsubishi UFG: “a break of 3.45% on the 2yr is on the cards” as the Fed’s message is one of getting policy into the 3.75%-4% area. Also keeping Treasury yields across the curve above 3% is Powell’s view of keeping policy higher for longer and won’t pivot anytime soon.It’s a wakeup call for equities as they are still looking for a Fed pivot. There has been a unified hawkish message from the Fed and Powell has been the capstone today.”

Putting it all together, Bloomberg’s Steve Matthews notes that the overall take is that Powell was moderately hawkish. The Fed chair is prepared for the economy and households to sustain some “pain” in order to lower inflation. He issued a dire-sounding warning against prematurely loosening policy. And while the recent improvement in inflation is welcome, he pushed back against it and said the Fed needs to see a lot more. He balanced that a bit by repeating that the Fed will slow down rate hikes “at some point” and left the debate on the size of the September increase to another day.