Markets have been eerily quiet ahead of the Federal Reserve Chair Janet Yellen's remarks at the Jackson Hole Symposium on Friday morning, which have the potential to upset the calm that's prevailed throughout the month. Broadly, analysts expect Yellen's remarks to be on the hawkish side, though many caution that there might not be a bevy of actionable information on the short-term outlook for rates given the speech's title, "The Federal Reserve's Monetary Policy Toolkit."
Here's what Wall Street firms are looking for from Yellen and how strategists are altering their positions heading into the event.
Barclays
"We believe Chair Yellen may use the opportunity to signal the FOMC’s growing confidence in the outlook for activity and inflation," writes Nikolaos Sgouropoulos, FX strategist. "Given the low market expectations for a September or December Fed rate hike, a re-pricing at the front end of the rates curve should drive a near-term rebound in the USD."
TD Securities
"A nuanced view from Chair Yellen at Jackson Hole can prevent a significant repricing in rates," writes a team led by Millan Mulraine, deputy head of U.S. research and strategy. "Our base line view sees disappointment on both sides of the debate." However, the team also suggests that this view could potentially signal "that Yellen may have shifted into the one-hike [for 2016] camp."
Bank of America Merrill Lynch
"We think it will be clear from the conference that the Fed will only be able to execute a very shallow hiking cycle," writes Michelle Meyer, head of U.S. economics. Meyer thinks that clues on upcoming Fed action (or a lack thereof) "will be difficult to find."
BNP Paribas
Markets are failing to adjust prices ahead of Yellen’s speech Friday, which means her remarks are “becoming an increasingly binary event” — one with major implications for the U.S. dollar in the short-term. Strategists at the bank are positioned for upside in the U.S. dollar into the speech, suggesting Yellen may give an indication that the central bank is considering a rate hike in September.
PNC Financial Services Group
"Yellen is unlikely to use her Jackson Hole talk to signal an increase in the federal funds rate at the FOMC's next meeting," writes Chief Economist Stuart Hoffman and Deputy Chief Economist Guy Faucher. "She is looking to create a consensus, and does not want to get too far out in front of other FOMC members." The duo warns that the Fed Chair likely won't use words that give the impression further tightening is imminent, and that the only calendar-based guidance that might be offered is that a rate hike is likely to occur before the year is out.
Oxford Economics
"We expect her comments to focus mostly on how the policy framework or tools may have to eventually evolve in a low interest rate environment," writes Kathleen Bostjancic, director of U.S. macro investor services. "Given the fed funds futures market is currently pricing in just a 24 percent probability of rate hike in September, we would not be surprised if Yellen construes her comments to lift those odds."
Reference: Bloomberg
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