Powell Jackson Hole Day, Markets After the Sell-off, Wild Retail Week and the Theft Effect 8/25/23

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Market insight and analysis.

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You're listening to the opening bell of CNBC's Squawk on the Street.

Carl Quintanilla (0:37)

Good Friday morning. Welcome to Squawk on the Street. I'm Carl Quintanilla with Courtney Reagan, Mike Santoli of the New York Stock Exchange. Jim and David have the morning off. The wait is almost over. Powell's speech at Jackson Hole just over an hour away. Futures pretty supportive here after the Bulls dropped the ball yesterday, the Dow's worst performance since March. A lot of earnings sneaking under the gate before the weekend as well. Our roadmap begins with Powell's inflation pitch though. Investors closely watching the rate policy tea leaves at Jackson Hole.

Plus, retail is reckoning. Nordstrom saying theft is at historic highs and gap, also warning of an uncertain consumer.

We'll bring you Sara's rare interview with the CEOs of Simon Property Group, Authentic Brands and their new partner, the executive chair of Sheehan.

Let's begin though with the Fed chair's remarks scheduled to be delivered in the next hour. Steve Leesman is in Jackson Hole, has been busy all morning long and has a preview. Hey, Steve.

Steve Leesman (1:29)

Hey, Carl. Yeah, despite the five percentage point decline in inflation since the Fed last gathered here in the mountains, Fed Chair Jay Powell not expected to deliver a victory speech here in Jackson Hole.

While Powell may acknowledge the progress and even hold out the possibility of a soft landing for the US economy, he'll retain his flexibility, I think, to raise rates or hold them at a high level until there's convincing evidence, is the phrase they've used. Inflation is headed to the 2% target. Ian Shepperson from Pantheon Economics, he writes, we see no reason to think that Mr. Powell is ready now to give up optionality, given the tendency of inflation in the past couple of years to disappoint after appearing to improve.

Now, markets have already kind of embraced this. September, probability of a rate hike trading 20 percent, but there's November at the even odds line at 50 percent. That's up from yesterday after Harker's remarks and up over the past couple of weeks. The other change, markets have backed way off expectations for cuts in 2024, removing almost 65 basis points of rate cuts since mid-July. Still though, looking for those cuts. It's useful to note the frame of the debate on the Fed now is between hawks who want to hike again and doves who don't want to cut now, but just don't want to hike like Philly Fed President Patrick Harker, who you know we spoke with yesterday.

Mike Santoli (2:46)

Steve, that's absolutely the case.

Patrick Harker (2:48)

Nobody is explicitly talking about cutting, but given the fact that the address is going to be played out for a while, and that should bring inflation down.

Steve Leesman (3:05)

Mike, so Powell I think could acknowledge some of the risks to the economy from tightening bank credit and the recent surge in rates, but the tone at best for markets will be balanced, not dovish, and the inflation victory dance, guys, if there's gonna be one, gonna have to wait till next year here.

Mike Santoli (3:21)

Yeah, for sure. And Steve, of course, I mean, Fed chair will typically like to preserve flexibility and stay data dependent if it makes sense. And it's certainly true that there's no rush to sort of start to foretell of rate cuts to come next year, but they also do have on paper, you know, this idea that the normal level of short-term interest rates is way below where we are right now. And presumably as the cycle moves on, they're gonna trend in that direction. Do you think any of that discussion is gonna be in the air?

Steve Leesman (3:51)

I don't think so. I tried to approach that yesterday with Harker on this idea of cuts, and they'll tell you, yeah, cuts could come next year if inflation comes down.

And that's not really an easing of financial conditions, as you know, Mike, because the Fed likes to think in terms of real interest rates or the inflation-adjusted interest rate, and you might just get a little bit of that next year.

And again, the hawks and the doves will differ over how much to cut, but also when to start cutting and how much evidence they need. I think you're gonna need several months, Mike, of really good PCE and CPI inflation numbers in order for the Fed to start talking seriously about that. I think today it's not, you know, just because it's Jackson Hole, I think the Fed chair delivers a thoughtful speech, but I don't think he has to decide. And I keep hearing that from other folks, which is, look, we got September and then we got October data. We don't have a meeting till November. And so they're not gonna make a decision before they have to, because we're not in a forward guidance mode here, Carl.