Investors are on edge for Jerome Powell's Jackson Hole speech. What to watch for, and what could go wrong.

• Investors await Jerome Powell's Jackson Hole speech amid volatile markets and economic data.
• July's weak economic data and high unemployment have heightened the focus on jobs and inflation.
• Global central bank coordination and potential rate cuts are key topics for Powell's speech.

The market has been quite volatile this month, reacting to a slew of bad economic data from July.

It's a really interesting time for the markets because there has been more focus on the job numbers and inflation than historically has been, said Geoff Strotman, a senior vice president at Segal Marco Advisors. But if the Fed finally decides to cut interest rates this year, September would be the time to do it .

The next big event is Jerome Powell's Jackson Hole speech on Friday. It will be a very important appearance for him and the Fed, Strotman noted, because there are no Federal Open Market Committee meetings in August or October. This means the market is left to interpret economic data on its own.

Until the Fed's next meeting, market volatility will continue as investors closely monitor every economic number and earnings report to better understand what lies ahead.

The issue is the stock market is riding heavily on momentum and is highly valued. For Strotman, this is cause for concern. Any slip-up in economic data could lead to violent reactions, which is what we saw when July's unemployment report came in lower than expected, he noted. All three major indexes were dragged down beginning July 31 but reclaimed their losses by mid-August as inflation showed signs of cooling after July's CPI registered at 2.9%.

"So I think that the market is a little bit on edge, and that's what makes us concerned. Any numbers, economic or earnings-base that look or can be perceived as negative certainly are being reacted to strongly by the market."

Therefore, all eyes will be on Powell's speech to set the tone for how markets should interpret upcoming economic data. Strotman hopes that Powell will use his appearance to define some guidelines around his expectations for August's and October's numbers; it would create a smoother ride for the economy and into the September Fed meeting.

Powell has continually reinforced his position that rate cuts will solely depend on economic data that show cooling inflation and solid labor data. So when July's unemployment report came in at 4.3%, the highest in three years, some economists went as far as calling for an emergency cut.

On Wednesday, more bad news came in as the annually revised jobs data from the Bureau of Labor Statistics showed the US economy added 818,000 fewer jobs than initially reported from April 2023 through March 2024. This reinforced the call for cuts soon. The question now is, by how much?

As for inflation, July's consumer price index was 2.9%, the lowest since March 2021 and closer to the Fed's 2% target.

The CME FedWatch tool, which estimates interest-rate changes, is now predicting a 75.5% chance of a 25-50bps cut in September, and an almost 50% chance of another cut in November.

On a global scale, Jackson Hole will also be an opportunity for Powell and the Fed to talk to other central banks around the globe, especially Japan, about their policy rates. So far this year, central banks worldwide have pursued different policies. While the US continues to hold rates firm, other countries either raised or cut, he noted. The lack of coordination caused volatility in markets. Japan's raising of interest rates unraveled the yen carry trade and sent US stocks plunging as investors sold off their positions to cover their Japanese debt.

"It'll be interesting to see if there is coordination," Strotman said. "Right now, the central banks are as uncoordinated as they've been in quite some time. Historically, it's been the US that makes the move, and the rest of the world follows."