So if Powell's cautious tone is focused solely on the medium-term outlook, specifically the next few months, investors may be inclined to take it in stride, the strategist wrote. In contrast, a focus on long-term impediments to bringing inflation down to the Fed's 2% target could force reluctant investors into a more profound rethink.
"Where Powell can do some real damage to stocks and bonds...is if he begins to link the recent inflation increase and forward inflation prospects to structural factors," Wizman said. "Any shift in the narrative of inflation toward blaming semi-permanent factors, such as de-globalization, tariffs, climate change and de-carbonization, demographic changes (including immigration), structurally high fiscal deficits, and/or global conflict, would herald a much higher long-run policy interest rate outlook."
"We think that Powell will be non-committal on these issues, but there's always a possibility that the views of the Fed's 'structural hawks' comes through in Powell's presser," he said, adding that those themes are likely to emerge when the minutes of the current meeting are published.