Powell's Jackson Hole Speech Spooks Markets; Dow, S&P 500 and Nasdaq Crash

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Federal Reserve Chair Jerome Powell said on Friday the US central bank will go ahead with interest rate hikes in the coming months as the focus at the moment is on taming inflation.

Delivering a stern warning to the markets, households and the economy in general, the Fed chair said there will be “some pain” ahead as the central bank battles to restore price stability.

More Pain

He said raising rates further will slow down economic growth and cause job losses as well. “These are the unfortunate costs of reducing inflation … But a failure to restore price stability would mean far greater pain,” the Fed chair said in his much awaited speech at the annual economic symposium in Jackson Hole, Wyoming.

Powell said his intent is to subdue inflationary pressures and bring back price stability. Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy,” Powell said, the Associated press reported.

He added that the central bank will not shy away from using the tools ‘forcefully’ to tame runaway inflation, which is at a 40-year peak at the moment.

Market Crash

Minutes after the Fed chair made the comments, US stocks edged down. The Nasdaq was down 2.5 percent in morning trade. While the Dow Jones Industrial Average lost 611 points, or 1.85 percent, the S&P 500 fell 2.18 percent.

European stocks were also down in the evening. The pan-European Stoxx was down 1.7 percent after Powell’s comments.

Optimists Proved Wrong

Though some investors had hoped that the Fed chair would drop signs that the central bank was poised to pivot away from the hawkish policy regime, Powell’s speech proved them wrong. Powell clearly stated that the priority of the moment was to bring inflation, which is 9 percent currently, to less than the target level of 2 percent.

“We will keep at it until we are confident the job is done … While the lower inflation readings for July are welcome, a single month’s improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down,” Powell said at the central bank conference in Wyoming.

Powell also gave an insight into the Fed’s thought process regarding the September rate setting meeting of the central bank. He said the Fed will consider inflation and jobs data before deciding if the rate hike is one-half or three-quarters of a percentage point.

What is Jackson Hole Symposium?

The Federal Reserve Bank of Kansas City organizes its Economic Policy Symposium in Jackson Hole, Wyoming. It is known as one of the longest-standing central banking conferences in the world. The event has been held in Jackson Hole since 1982. Besides central bankers, economists, financial market participants, academics and US officials participate in the event.

About 120 people generally attend a year, representing a variety of backgrounds and industries, according to Investopedia. The Federal Reserve Bank of Kansas City selects specific topics for each year’s discussion.

Some of the topics in recent years have been ‘Changing Market Structures and Implications for Monetary Policy’ (2018) and ‘Central Bank Balance Sheets and Financial Stability’ (2016)

This year, the symposium organized around the topic ‘Reassessing Constraints on the Economy and Policy’. The event will take place between August 25 and 27.

Why is Jackson Hole Speech Important?

The US Federal Reserve leaders typically use the Jackson Hole symposium to make important announcements that lay down financial policy. The first US central bank chief to attend the event was the legendary Paul Volcker. Since then all Fed bosses have been attending the event. “Traditionally Fed chairs have used the Jackson Hole Symposium to provide an update on economic conditions and also give an indication of any policy shifts that may be expected. Since we are now in a downturn and talk of a looming recession, the symposium will be a landmark event for investors,” says Viram Shah, Co founder and CEO of Vested Finance.

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