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Investing.com - Fed Chair Jerome Powell’s comments at an annual event in Jackson Hole, Wyoming later this month could shape the central bank’s policy until the end of the year, according to analysts at Barclays (LON:BARC).
In a note, the bank said that, against a backdrop of soft jobs data and signs of tariff-driven inflation, this year’s Jackson Hole Economic Symposium, which begins on August 21, will be "especially pivotal."
Following weak labor market figures earlier this month, markets have been increasingly penciling in a 25-basis point reduction in interest rates at the Fed’s next meeting in September. Yet inflation remains above 2%, with more consumer price growth data due out on Tuesday.
"A signal that rate cuts are less certain, or that inflation risks still outweigh growth concerns, could trigger a correction in equities," the strategists led by Stefano Pascale wrote.
They added that the warn against "downplaying such a risk," arguing that recent years have shown that equities -- as well as other assets -- have become "materially more reactive" to comments made at the forum.
On a one-year volatility-adjusted basis, the average reaction move across the benchmark S&P 500, tech-heavy Nasdaq Composite and small-cap-focused Russell 200 since 2017 has been larger than what was the case in previous years, data from Barclays showed.
Small-cap stocks, in particular, have seen the largest jump in reactivity, the analysts noted. Across multiple asset classes, gold and the U.S. dollar have also been sensitive to news out of Jackson Hole.
Still, they flagged that options on exchange-traded funds covering these assets do not necessarily offer the best hedging value against big value swings.
"Interestingly, options on emerging market (EEM) and European equities (FEZ, EFA) as well as U.S. energy (XLE (NYSE:XLE)) and real estate (IYR) are pricing in the cheapest move versus history," the analysts said.