Traders are cutting risk and buying the dollar going into the holiest of holies on the central bank calendar – the annual Economic Symposium in Jackson Hole, Wyoming. Treasury yields are rising, equity futures are dropping, and the trade-weighted greenback is up roughly 0.3 percent as markets position ahead of Federal Reserve chair Jerome Powell’s speech next Friday morning.

Mr. Powell is widely expected to argue against the arguably-premature loosening in financial conditions that has occurred since the July meeting, attempting to better align market forecasts with the central bank’s own terminal rate projections. This is unlikely to drive a huge adjustment in pricing for September — investors and policymakers are split between a 50- and 75-basis point move, and more data will land before the meeting — but could bring sharp shifts in three- to six-month yields.

We think Powell will also work to lower expectations for a “pivot” in early 2023. A long history of policy reversals has lulled investors into thinking that the same cycle will play out this time, with the central bank raising rates only to start slashing them when the economy slows. Inflation has likely already peaked — and negative year-over-year prints could come at some point — but inertial forces make a return to pre-pandemic price trends deeply unlikely. Once rates hit near-neutral levels (still well below historical norms), fear of an inflationary resurgence should prevent a return to stimulative settings.

Fed officials may lead sheltered lives, but they have seen enough episodes of the Walking Dead to know that you can’t turn your back on a zombie until you’re sure it is truly dead.

Canadian retail sales will deliver mixed messages. The headline reading for June, due at 8:30 am, is expected to come in around 0.4 percent, and the core measure – with auto sales excluded – should come in closer to 0.9 percent. The advance estimate for July, which does not break out the vehicle category, is very likely to drop in line with falling gasoline prices. Canadian consumer spending has held up remarkably well thus far this year, but is likely to weaken in the autumn months as higher interest rates and rising levels of economic uncertainty force a shift in buying patterns.

Beer o’clock should come early for traders today, with no other major data releases on the docket. Richmond Fed President Thomas Barkin will be discussing the economy at 9 am and Baker Hughes will publish its latest rig count at 1 pm, but neither is likely to prove particularly important for markets.

Karl Schamotta, Chief Market Strategist