Why Janet Yellen's Jackson Hole speech could give the stock market a boost

Yahoo Finance

The Kansas City Fed's annual Jackson Hole economic symposium kicks off Thursday, and Fed Chair Janet Yellen will give the keynote speech Friday morning. For most of the past seven years, the S&P 500 has rallied an average of 1.3% on the day that the Fed chair speaks, according to Bloomberg.

So will the trend continue?

It could, says Pedro da Costa, a reporter at The Wall Street Journal. He explains in the video above that the market is trying to get ready for interest rate hikes and has been on alert for any signals that might be hawkish from the Fed. (Consensus expectations are for the first rate hike in July of 2015, and signs of potential for a hike sooner are thought to impact stocks negatively.)

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"Yellen has been on the side of taking her time and being cautious about not jumping to conclusions... because the Fed has been caught off-guard by bad surprises before," da Costa says. "Continuing to dampen those expectations for rate hikes [in her speech], she could actually give the market a boost."

The key debate among Fed governors currently, according to da Costa, lies in the concept of slack, or in simpler terms, how much unused capacity there is in the economy.

Related: Fed is tapering too early, needs to wait for next recession: Schatz

The theme of the academic conference this year is 'Re-Evaluating Labor Market Dynamics,' so da Costa expects Yellen's speech to "dig a little deeper into signs of labor market weakness than she has in the past." Yellen has pointed in the past to weakness in the labor market that is not reflected in the unemployment rate, such as the decline in labor force participation and the number of people working part-time because they can't get a full-time job.

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