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Weekly Economic Report 8.25.23

Chair Powell’s speech at the Kansas City Federal Reserve’s Jackson Hole Symposium has set up an interesting week ahead for the financial markets headed into the long Labor Day weekend. As he has at previous post-FOMC presentations, Powell maintained a relatively hawkish stance, arguing that the job of bringing inflation back down to the 2% target is far from over, and that the Federal Reserve remained dedicated to getting that job done. There was no hint that they would adopt any target other than 2%. He continued to advocate for a data driven approach, stating that the FOMC would raise rates further if the data suggested that was necessary. He reiterated that it was likely to take a period of below trend growth to get inflation fully under control. He noted food and energy inflation, though helpful lately, were volatile -- and recent risks were back to the upside. His dissection of core inflationary pressure into three parts indicated: that falling goods prices were expected; that there was still a long lag before rental inflation was not an issue; and, that the good news on core services inflation (ex-rent) was far to brief to establish a trend. Bottom line, monetary policy – at least from Powell’s perspective – needs to remain restrictive for much longer, and perhaps become even tighter.

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