-- Wall Street is betting that Federal Reserve Chair Jerome Powell will confirm that interest-rate cuts are coming at the central bank’s annual confab in Jackson Hole, Wyoming. But as the debate shifts from “will they or won’t they?” to “how big will they go?” — stock traders may be left wanting.“If traders hear cuts are coming, stocks will react favorably,” said Eric Beiley, executive managing director of wealth management at Steward Partners Global Advisory.
The Fed chair will likely imply that tight monetary policy is no longer warranted, according to Bill Dudley, a Bloomberg Opinion columnist and former head of the New York Fed. But he doesn’t expect Powell to signal the size of the first cut, particularly since there’s a jobs report on Sept. 6 for central bankers to consider before their next policy decision on Sept. 18.
Of course, traders have pared their jumbo-sized bets for a September rate reduction on signs of a resilient economy, pricing in roughly 30 basis points of easing next month. That means the perceived market risk from Jackson Hole is receding with investors no longer expecting aggressive cuts, which historically have been used to stem slowing growth, according to US Bank’s Hainlin.
This time around, however, investors are hopeful the Fed has achieved its goal of engineering a soft landing by taming runaway prices without triggering severe economic pain. So the expectation is for the opposite — a dramatic liftoff.