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All Eyes Turn To Jackson Hole As Powell, Central Banks Take Center Stage In Pivotal Week


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3 comments on “All Eyes Turn To Jackson Hole As Powell, Central Banks Take Center Stage In Pivotal Week

  1. Harvey Cotton

    The Fed will have to communicate a full dovish surprise to go with their full dovish pivot. If they cut 50 bps without using the soothing adverbs, the market will go nuts and price in further cuts. If they cut 50 bps the right way, the market will give the Fed the space they need to communicate to the markets further cuts.

  2. Seeing as Powell needs the market to be down prior to making a significant move (rates or narrative) to have any pretext of independence, I find it unlikely we hear much different from this week. I expect Powell is fully aware that he needs to be more dovish to meet the market’s expectations. He will purposely not meet those expectations such that a 10%+ move down in risk assets prior to a Sept “live” meeting has the pretext needed for a 50 bps cut and likely narrative adjustment.

    At least that’s how I’m reading the situation.

  3. Realstuff

    Powell could offer a relaxed and laid back theory that their newest model adjustment gave a false positive and that caused the Fed to make a few policy mistakes … but, but, we have adjusted the model and want to assure global markets that we now have our shit together and things will in fact be super cool going forward, so relax!

    Here’s a summation of the model tweek and obviously all they have to do is reverse engineer what actually happened, then take credit for finding “the” mistake (what ever that is — and perhaps fire one of their 4000 economics gurus as an offering to Mr. Market):

    ==> A highly hedged warning: Buried on page 7 of the new study is a warning that the probability of a recession had increased significantly since the original study was done about a year ago: “As of the end of the sample period in early 2019 (and the time of this writing), the near term forward spreads forecast a substantially elevated probability of a recession.”

    Indeed, Figure 3 in the study clearly shows that recession risk jumped to 50% (based on first-quarter 2019 data available only through January). Interestingly, this important update wasn’t mentioned in the summary paragraph at the beginning of the study. However, the charts in the paper show that the odds of a recession increase most significantly when the near-term forward spread is markedly below zero, which it was not as of the most recent analysis.

    “The most prominent false positive during our sample came with the anticipated easing triggered by the spread of the Asian financial crises in 1998, which did not result in a recession in the U.S. It is not hard to imagine that similar scenarios could generate additional false positives in the future. The near-inversion of the near term forward spread at the end of 2018 seems to have been associated with market perceptions of significant risks to the global economic outlook, including the threat of escalating trade disputes. Whether those risks manifest in a recession remains to be seen.”


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