Rates traders are gearing up for a keynote speech from Federal Reserve Chairman Jerome Powell in Jackson Hole on Friday that could be wildly out of tune with their expectations.

Futures markets are calling for the Fed to cut its key policy rate at least 50 basis points by year-end, and more than likely 75. Investors aren’t expecting great detail on the Fed’s plans for interest rates from its marquee annual event in Wyoming, but it’s widely expected that Powell will use the stage to signal more easing.

His tone may disappoint. Not for the first time this year, he faces a market heavily invested in lower rates -- and yet again, the domestic data don’t necessarily warrant them. The tightest labor market in 50 years shows little sign of buckling, consumption continues to buoy growth and there’s even improvement on the inflation front. Powell has said the Fed will act to protect the U.S. economy from global risks, but no policy makers are suggesting that would amount to more than a couple of standard easings.

“There seem to be some people out there who think this is going to be some sort of a really dovish speech and I think it’s going to be more balanced than that,” said Kathy Jones, chief fixed-income strategist at Charles Schwab & Co. She doesn’t see “a huge consensus” at the Fed for another 75 or 100 basis points of cuts over the next six or 12 months.

There’s no clear sign that the two voters who dissented on the July cut have changed their stance. The Boston Fed’s Eric Rosengren said this week that he needed evidence of a U.S. slowdown to justify further easing.

In July, the Fed managed to underwhelm even with the first rate cut in a decade. And this month, thanks to the latest deterioration in U.S.-China trade relations and ugly European data, yields reflect an even darker worldview.

Last week, the 10- and 30-year yields dipped below 1.5% and 2%, respectively -- the latter an all-time low -- and they’re not far above those levels now. The two- to 10-year yield curve has recovered modestly from a brief inversion, but its recession signal was widely heeded.

The most likely reaction of a dissatisfied market will be further flattening in the curve, Jones says, as traders pare positioning for rate cuts. That’s a rehash of what happened last month following the Fed’s meeting. And the trajectory could well be the same -- where an initial so-called bear flattening is replaced by a sharp decline in long-end yields on concern that the central bank will be too slow to avert a downturn.

Reassurance Options

To reassure markets, Powell could dwell on the uncertainties arising from faltering trade talks, and the contraction in some of the world’s largest manufacturing sectors.

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