Today (Friday, August 26), the annual Jackson Hole Symposium was held in Wyoming. Each year the Federal Reserve-sponsored conference focuses on critical economic issues facing the world economy. This year, the focus was on Fed Chair Jerome Powell and the Federal Reserve's stance on using interest rates to battle inflation going forward. Comments made by the Fed not only pertain to the US, but many central bankers and finance ministers globally also look to the US for guidance.

Markets remained cautious leading into the meeting in anticipation of gaining a glimpse of what we can expect from interest rates going forward. Up until this point, many market participants believed the Fed would become more dovish going forward considering the US CPI  fell in July from the 9.1% June peak to 8.5%. Those hopes and expectations were not validated, however, as Fed Chair Powell took a hawkish stance and indicated that, “We will keep at it until we are confident the job is done.” 

In hopes of curtailing demand in order to get inflation under wraps, the US central bank has delivered four interest rate hikes over the past six months while also taking money out of the system through balance sheet reduction. Although rates themselves are not at a high, historically speaking, the velocity at which they are increasing has investors worried the trend could continue in a similar fashion as the 1980s. 

“With inflation running far above 2 percent (target) and the labor market extremely tight, estimates of longer-run neutral are not a place to stop or pause,” Powell said Friday.

The Fed has a dual mandate of maximum employment and stable prices, with unemployment now back at record lows of 3.5% in a post-pandemic era, this provides firm ground to raise rates further.

The market finally seems to be taking the Fed seriously with the S&P 500 finishing down -3.37% for the day. Companies that have previously benefited from cheap money and loose monetary policy continue to be most sensitive to interest rate speculation. The next Federal Reserve meeting is on September 22 and, given today’s comments, another “unusually large” increase is most definitely on the table.

As always, if you have any questions about today’s Market Update, you can call us at 604-643-0101 or email cashgroup@cgf.com