The world will be watching Federal Reserve Chairman Jerome Powell later this week, and markets may not like what they hear.<\/p>\n
The stock market tanked after Powell\u2019s Jackson Hole speech last year, as he championed the central bank\u2019s commitment to fighting inflation despite the economic pain\u2013signaling the path of rate hikes ahead.<\/p>\n
While the circumstances are different this year, his comments could still ring more hawkish than the market is expecting.<\/p>\n
A year on and the dilemma facing investors isn\u2019t how much higher rates will go but for how long they will stay high. In this regard, Powell could issue another wake-up call.<\/p>\n
Focus has shifted recently to the possibility of rate cuts next year\u2014something the market initially incorrectly predicted for later in 2023. The market is currently pricing in the first rate cut in May 2024. Goldman Sachs economists said last week they see the first cut in the second quarter and then 25 basis points of cuts per quarter.<\/p>\n
Powell has consistently said the Fed\u2019s battle with inflation is far from over. There\u2019s a chance he could dampen, or even shoot down, rate cut expectations.<\/p>\n
The long-term feel of this year\u2019s symposium (the theme is \u2018Structural Shifts in the Global Economy\u2019) raises the prospect of an adjustment to the \u201cr-star\u201d\u2014essentially the neutral long-term interest rate when the economy is theoretically at equilibrium.<\/p>\n
If the Fed chairman mentions this potentially needing to move up, then it could signal a new era of higher interest rates and end hopes of a return to lower levels. The bond market appears to see that shift coming\u201310-year yields hit their highest level since 2007 last week. <\/p>\n
Powell won\u2019t want to cause a second year of market shocks at Jackson Hole, but he\u2019ll want to make the Fed\u2019s stance clear. It\u2019s a tough balancing act.<\/p>\n
\u2014Callum Keown<\/em><\/p>\n *** Join Barron\u2019s deputy editor Ben Levisohn today at noon when he talks with senior writers Al Root and Nicholas Jasinski about the outlook for the Fed\u2019s annual meeting in Wyoming, the turmoil in the auto industry, and the lessons of earnings season as another one comes to an end. Sign up here.<\/em><\/em><\/p>\n Try your hand at this morning\u2019s Barron\u2019s digital jigsaw, which is based on the week\u2019s cover story. For all games, including the daily crossword and sudoku, click here.<\/em><\/p>\n Some economists are prepared to hear Powell use his Friday speech at the Economic Policy Symposium in Jackson Hole, Wyo., to calm down the bond market after Treasury yields have risen for five straight weeks.<\/p>\n What\u2019s Next:<\/strong> The Fed has penciled in one more 25 basis-points rate hike before the end of this year. Behind the scenes, Fed officials will be debating whether the economy is going to go back to the low inflation, low interest rate environment seen before the Covid-19 pandemic.<\/p>\n \u2014Janet H. Cho and MarketWatch<\/em><\/em><\/em><\/em><\/p>\n A slew of major retailers will offer insight into consumer spending and economic resiliency this week. Retail sales rose by a faster-than-expected 0.7% rate in July as consumers demonstrated resilience, but shoppers are still making trade-offs between necessities and discretionary purchases.<\/p>\n Kohl\u2019s,<\/span> Target,<\/span> What\u2019s Next:<\/strong> When the University of Michigan reports its final August Consumer Sentiment Index on Friday, economists surveyed by FactSet expect the index to remain at 71.2, essentially unchanged from July\u2019s 71.6.<\/p>\n \u2014Janet H. Cho and Sabrina Escobar<\/em><\/em><\/p>\n China\u2019s central bank made smaller-than-expected adjustments to interest rates Monday, undermining hopes of stimulus for the world\u2019s second largest economy.<\/p>\n What\u2019s Next:<\/strong> The five-year loan prime rate is the reference rate for mortgages in China. The lack of a rate cut disappointed investors. The lackluster stimulus raises questions about China\u2019s ability to restore economic growth to pre-pandemic levels. UBS economists led by Tao Wang on Monday cut their 2023 growth forecast for China\u2019s gross domestic product to 4.8% from 5.2% previously.<\/p>\n \u2014Adam Clark<\/em><\/em><\/p>\n J&J Spinoff Kenvue Faces Lawsuits Over Tylenol Ingredient<\/h2>\n \n Johnson & Johnson\u2019s<\/span> GSK,<\/span> What\u2019s Next:<\/strong> Judge Denise L. Cote of the Southern District of New York will decide which experts can testify at the Tylenol trial. If she rejects the plaintiffs\u2019 experts, the litigation will collapse, but if she accepts them, the case will proceed. An opinion is expected before the end of 2023.<\/p>\n \u2014Josh Nathan-Kazis and Janet H. Cho<\/em><\/em><\/em><\/p>\n Chip maker What\u2019s Next:<\/strong> A Barron\u2019s<\/em> AI roundtable said the bigger value creation is going to be using the data that exist within enterprises to drive efficiencies, make leaps of intuition, make decisions faster, or reach conclusions that couldn\u2019t previously be reached because the data were inaccessible.<\/p>\n \u2014Liz Moyer and Eric J. Savitz<\/em><\/em><\/em><\/p>\n***<\/h4>\n
Chairman\u2019s Remarks in Focus at Jackson Hole Symposium<\/h2>\n
\n
***<\/h4>\n
Retailers\u2019 Earnings Will Show How Eagerly Consumers Are Spending<\/h2>\n
\n
\n Macy\u2019s,<\/span><\/p>\n
\n and
\n Nordstrom
\n all report this week. Macy\u2019s already cut its profit and revenue outlook for the rest of 2023. It is remaking its private-label business<\/strong> to boost sales and improve margins.<\/p>\n<\/li>\n
\n Dick\u2019s Sporting Goods
\n and
\n Foot Locker
\n also report. Sales at sporting goods and hobby stores rose 1.5% in July, and clothing sales increased 1%, but some of that spending could be attributed to back-to-school shopping<\/strong>, Morning Consult economic analyst Kayla Bruun noted.<\/p>\n<\/li>\n
\n BJ\u2019s Wholesale Club
\n and
\n Dollar Tree
\n report, after
\n Walmart,<\/span><\/p>\n
\n and
\n TJX
\n all beat earnings expectations last week. Grocery sales were a big boost<\/strong> to Walmart\u2019s results.<\/p>\n<\/li>\n
\n reports on Tuesday, after
\n Home Depot
\n last week surpassed forecasts but warned of moderating demand<\/strong> for home-improvement projects and big-ticket items amid rising interest rates.<\/p>\n<\/li>\n<\/ul>\n***<\/h4>\n
China\u2019s Latest Interest Rate Cut Is Less Than Expected<\/h2>\n
\n
***<\/h4>\n
\n
\n new independent consumer health spinoff
\n Kenvue
\n is facing some little-noticed lawsuits claiming the painkiller Tylenol caused neurological disorders in children whose mothers took it during pregnancy. The lawsuits say the company should have warned consumers about such possible risks.<\/p>\n\n
\n Sanofi,<\/span><\/p>\n
\n and
\n Haleon
\n dropped last year after a passing mention of product liability litigation over the heartburn drug Zantac.<\/p>\n<\/li>\n<\/ul>\n***<\/h4>\n
Nvidia Earnings to Put Spotlight on the AI Boom<\/h2>\n
\n Nvidia
\n will report this week in what some analysts see as a test of its status as the darling of the artificial intelligence investment boom. The report will also be an update of tech demand overall, after businesses tightened their IT budgets over worries about an economic slowdown.<\/p>\n\n
***<\/h4>\n