Jerome Powell will give a closely-watched speech tomorrow (Friday, 8/25) at the Federal Reserve Bank of Kansas City’s annual Economic Policy Symposium in Jackson Hole, Wyoming at 10:05am ET. Historically, the Fed Chairman’s speech has often hinted at inflection points in policy, but I don’t think it will tomorrow.

Given the choice, I think he would rather call out sick because the Fed holds a convenient equilibrium between hawkish and dovish FOMC members that is best left undisturbed. Financial conditions have tightened considerably since the last Fed meeting on July 26th from fiscal concerns along with a stronger than expected Q2 GDP and July Retail Sales. Treasury yields across the yield curve are about 27 basis points higher on average (see chart below) and stocks are about 4% lower (S&P 500). These tighter financial conditions have given the Fed a shadow tightening which should soothe the Fed hawks’ anxiety to raise overnight rates (Fed Funds) while giving the doves their desire to let more economic data come in before any further raising is considered. It serves the Fed to leave this balance alone until the direction of economic data is better resolved.

If Powell is too dovish tomorrow, interest rates will fall and stocks will rise; amounting to a reversal of the shadow tightening and enlivening the hawks to raise overnight rates again. If Powell is too hawkish, it would betray the increasing number of doves concerned about over-tightening while adding more pressure on the interest-rate sensitive parts of the economy. Powell giving as little rate guidance as possible in his speech tomorrow is the “middle-way” to best satisfy everyone on the committee.