Here's what Wall Street expects from Jerome Powell at Jackson Hole

• Fed chief Jerome Powell is scheduled to speak Friday at Jackson Hole, Wyoming.
• Markets will be hanging on his every word, and Wall Street expects him to focus on inflation and interest rates.

Jerome Powell will likely move markets when he speaks at Jackson Hole, Wyoming, on Friday and Wall Street will be listening for several key sound bites as the chief central banker gives his outlook for inflation and the economy.

At the same speech a year ago, Powell said inflation was too high, and that the Fed wouldn't stop hiking rates until prices cooled to target.

Indeed, inflation has since eased to about 3%, down from above 9% last summer. There's reason to acknowledge the progress the Fed's made over the last 12 months, but the latest labor market data suggests the economy remains too hot for the Fed's liking, even after 11 rate hikes.

Bond yields have surged to multiyear highs this week, weighing on stocks that have already slumped all of August even as investors largely believe the end is near for rate hikes. Some believe that panic over rising rates in August might goad Powell into dovish talk on future hikes to soothe jittery markets.

On Tuesday, traders gave 84% odds of "no change" at the September Fed policy meeting, according to CME's FedWatch Tool.

The key question for markets now is how long Powell and co. will keep rates elevated.

The theme at this year's banking summit is "Structural Shifts in the Global Economy," and while Wall Street expects Powell to keep inflation in focus, he's unlikely to give a more definitive answer on exact policy tweaks until next month's Federal Open Market Committee meeting.

"We are not expecting to get a strong monetary policy signal out of Jackson Hole," Goldman Sachs strategists wrote in a note Friday. "[A]lthough we do expect the FOMC to skip a hike in September, key data including the PCE inflation and employment data come out shortly after the Jackson Hole symposium. The Fed will likely wait to be informed by these new data before changing their current posture."

Market reaction

When Powell warned that the inflation battle would "bring some pain" at last year's symposium, markets corrected lower, but it's possible that the opposite plays out on Friday.

"So strong was Powell's message [in 2022] that the Fed was intent on restoring price stability that markets fell just over 3% the following week," Quincy Krosby, chief global strategist for LPL Financial said Tuesday. "Typically, markets have been in positive territory the week following Jackson Hole."

This time around, it's possible Powell highlights the odds of a no-recession scenario, which could make traders more optimistic.

"I think the Fed likely says something dovish-ish," Fundstrat's Tom Lee said on Monday. "Why? Does Fed want to risk another 'something breaking' ala February 2023? While some look back at August 2022 when Fed Chair Powell's [Jackson Hole] statement was hawkish and marked the local top in 2022 (stocks fell -19% next 8 weeks), we think the context is the opposite."

Meanwhile, Ned Davis Research pointed out that Powell could reiterate his stance that promising economic data has allowed the Fed to slow the pace of policy adjustments, but that he will include careful language to leave the door open to further rate hikes.

"The big debate will be how long the Fed will remain restrictive," NDR said Monday. "In the meantime, the Fed will keep with a tightening bias."

Geopolitics and the Fed

Away from the US, geopolitical factors impacting the economy could get a nod from Powell as well.

China's economy is stumbling instead of rebounding from the pandemic as had been expected. Its housing market is shaky, debt is piling up, and trade is weakening, among other concerns. Meanwhile Russia is still warring with Ukraine and keeping commodity markets in a state of uncertainty.

"One structural shift is reducing the reliance on China, Russia, and other non-aligned countries by the developed economies," NDR said, noting that Powell may also tie in comments about a shifting global economy. "All of these feed into a higher intermediate to longer-term outlook for inflation, and whether the 2 percent inflation target is appropriate for developed economies."