Markets have clearly been anxious in the lead up to Jackson Hole, as investors and traders await the next policy clues out of Fed Chair Powell later this week.
The declines in equities and bonds of late suggest that Powell will strike a hawkish tone to fight rampant inflation, at the expense of economic growth. If Powell’s commentary forces markets to further price in more supersized Fed rate hikes, that might trigger more declines for equities and gold, while king dollar would continue to exert its dominance across the FX universe.
If Powell appears more dovish than envisaged, perhaps adopting a more cautious tone over the US economic outlook, that could reassert the narrative that the Fed will back off from larger rate hikes and potentially allow risk assets to resume their summer rally.
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