Ultima Markets: [Market Hot Spots] Powell is in a dilemma with a tight labor market...

The annual Jackson Hole Conference has once again attracted market attention, especially in the current context of tight labor markets and shrinking economic activity in the United States. The market is focused on the speech of Federal Reserve Chairman Powell, looking forward to his statement on inflation and monetary policy. Powell's speech will focus on multiple key issues, one of which is whether to adjust the medium-term inflation control target.

As inflation continues to show resilience, Powell has had to place inflation expectation management at the core once again. The market is full of doubts about whether the Federal Reserve will adjust its medium-term inflation target. Although this may seem like a solution, it is actually full of obstacles.

(USA10Annual bond yield)

10The yield on one-year US Treasury bonds has arrived due to yesterday's tight labor data4.243%At a high level, there is a strong risk seeking sentiment in the market.

(The number of initial claims for unemployment benefits continued to decline last week)

Ultima MarketsInvestment Research Group AnalystElonThe change in medium-term inflation targets means that very clear forward-looking guidance has emerged, and the market will be very sensitive to such news. The US dollar index will further rise under hawkish rhetoric.

Powell's speech needs to simultaneously stabilize inflation expectations, US inflation trend expectations, and medium-term inflation target expectations. The stability of inflation expectations is crucial, especially when there is a deviation between consumer inflation expectations and financial market expectations. The market's repricing of long-term inflation expectations indicates that the market remains vigilant about the inflation outlook, and the Federal Reserve's task of managing inflation expectations has not been alleviated.

Daily cycle of the US dollar index, sourceUltima Markets MT4）

From a technical perspective, the US dollar index has broken through the previous downward trend line pressure, and the high opening of the Asian session suggests that the market believes that Powell will make adjustments to the medium-term interest rate target due to labor market tension.

Overall,2023The Jackson Hole Conference in will focus on inflation challenges and policy prospects.Powell's statement is likely not to be one-sided, especially as the US economy remains resilient. However, managing inflation expectations remains an important task that the Federal Reserve cannot ignore. Although the market expects Powell's expectations, the uncertainty of the inflation outlook makes monetary policy adjustments more complex.

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