In This Article:
By Geoffrey Smith
Investing.com -- Jerome Powell lays out the Fed's strategy for the future, amid expectations of lower-for-longer interest rates. Weekly jobless claims and a revision to quarterly GDP figures will give a reality check on the economy's health. Stocks are in a holding pattern, while oil is still well supported as Hurricane Laura hits Louisiana and East Texas. Here's what you need to know in financial markets on Thursday, August 27th.
Advertisement: High Yield Savings Offers
1. Powell's big reveal
U.S. Federal Reserve Chairman Jerome Powell will deliver a keynote speech that’s expected to lay the groundwork for a fundamentally looser monetary policy for the foreseeable future.
Powell is expected to detail the conclusions of a long review into the Fed’s policy framework, and most analysts expect him to announce a shift to Average Inflation Targeting, under which the Fed would let inflation run above its current 2% inflation target to make up for years of undershooting it. That means keeping interest rates lower for longer. Bloomberg reported on Wednesday that it could mean no rate hikes for as much as five years.
Market speculation on the shift has contributed both to the dollar’s recent weakness and the strength of stocks, which typically enjoy the prospect of free money forever. Kansas City Fed President Esther George on Wednesday downplayed any threat to financial stability, saying it was more important to focus on the near-term health of the economy
2. Jobless claims, GDP revision due
The health of the economy will be on parade again at 8:30 AM ET (1230 GMT) – before Powell speaks at 9:10 AM ET – with the weekly jobless claims numbers and a revision to the second-quarter data for Gross Domestic Product.
Initial jobless claims are expected at around 1 million again, down from 1.11 million last week, while continuing jobless claims are expected to have edged down by around 400,000 to 14.45 million. As always, the fuller picture will be in the number that also includes those claiming Pandemic Unemployment Assistance.
GDP is expected to be revised up slightly to a mere -32.5% in annualized terms from an initial reading of -32.9%. As UBS Global Wealth Management chief economist Paul Donovan argued in a morning note, the practise of annualizing such figures “is a silly thing to do at the best of times and borderline madness in the midst of a pandemic.”
3. Stocks set to open a tad lower, in holding pattern
U.S. stock markets are set to open lower ahead of Powell’s speech. Having bought the rumor of a shift to easier monetary policy, the temptation will be accordingly to sell the fact when it happens.