Key Points:
- Goldman Sachs lowered the odds of a U.S. recession to 20% from 25%
- Traders are expecting the Federal Reserve to signal rate cuts at the upcoming Jackson Hole meeting
- Gold prices reached a record high of $2,509.65 per ounce on expectations of Fed rate cuts
- San Francisco Fed President Mary Daly supports gradual interest rate cuts as inflation confidence grows
- Markets are pricing in a 70% chance of a quarter-point rate cut at the Fed’s September meeting
As the Federal Reserve’s annual meeting in Jackson Hole, Wyoming approaches,
Wall Street is eagerly awaiting signals about the future of interest rates. Traders and investors are hoping that Fed Chair Jerome Powell will confirm that rate cuts are on the horizon when he speaks on Friday.
The anticipation of rate cuts has already had a significant impact on financial markets. The S&P 500 Index has rebounded strongly, gaining $3.3 trillion in value after a brief selloff earlier this month. Gold prices have also surged, reaching a record high of $2,509.65 per ounce on Friday.
Goldman Sachs, a major investment bank, recently lowered its forecast for the likelihood of a U.S. recession. The bank now puts the odds at 20%, down from 25%. This change came after recent positive economic data, including strong retail sales figures and lower-than-expected jobless claims.
Some experts caution against expecting too much clarity from Powell’s speech. Tom Hainlin, national investment strategist at US Bank Wealth Management, noted, “Looking at past Jackson Hole speeches, it’s not likely we’ll get very prescriptive remarks from Powell.”
The market is currently pricing in a 70% chance of a quarter-point rate cut at the Fed’s September meeting. Some traders are even betting on a larger half-point cut, though this is seen as less likely.
Mary Daly, president of the San Francisco Fed and a voting member of the Federal Open Market Committee, has voiced support for a gradual approach to lowering interest rates. In an interview with the Financial Times, Daly said,
“Gradualism is not weak, it’s not slow, it’s not behind, it’s just prudent.”
Daly’s comments suggest that the Fed is not in a rush to make dramatic changes to monetary policy. She noted that while inflation is coming under control, the economy is “not in an urgent place” that would require rapid rate cuts.
The Fed’s decision-making process is complicated by mixed economic signals. While inflation has been easing, with the consumer price index falling to 2.9% in July, the job market remains relatively strong. This has led to a debate among policymakers about the appropriate timing and size of potential rate cuts.
The upcoming Jackson Hole meeting is seen as a crucial moment for the financial markets. Eric Beiley, executive managing director of wealth management at Steward Partners Global Advisory, said, “If traders hear cuts are coming, stocks will react favorably. If we don’t hear what we want, that would trigger a big selloff.”
The potential for market volatility is high, with options traders expecting the S&P 500 to swing over 1% in either direction on Friday, based on data from Citigroup Inc.
The gold market is also closely watching the Fed’s next moves. The precious metal has benefited from expectations of rate cuts, with prices up over 20% this year. Some analysts believe that factors such as a slowing U.S. economy, lower yields, a weaker dollar, and strong central bank demand could drive gold prices even higher in the long term.
