Will tomorrow’s comments by FRB Chair Powell alter monetary policy expectations? At the time of this writing there is a 78% chance of an interest rate reduction at the September meeting and almost 50 bps of easing are discounted by year’s end.
There is ample precedence of significant changes in monetary policy announced at the Jackson Hole Symposium, the closing of which is after tomorrow’s keynote speech by the FOMC Chairman.
As written many times, the Chairman does not set monetary policy but is the spokesman of the consensus view of the 19-person Committee.
Yesterday’s release of The Minutes from the July FOMC meeting highlighted the risk to inflation outweighing concerns over the labor market. As widely known, the Federal Reserve has a dual but conflicting mandate…maximum employment and stable prices.
Policy makers then left interest rates unchanged in a range of 4.25% to 4.5%, citing elevated uncertainty in their outlook as economic activity moderated. Their statement at the time characterized the labor market as “solid” but said inflation remained “somewhat elevated.”
In the press conference following the meeting, the Chairman said the inflationary impact from tariffs could well be temporary, has not yet been fully felt, but the Committee “needs to guard against a more persistent effect” debating whether the tariffs would generate a one-time price impact or a more lasting inflation shock.
Signs that inflation remains the predominant concern of the Fed squelched gains in Treasuries and extended the losses in stocks, a decline that has wiped out more than $1 trillion from the S & P 500 in four days according to Bloomberg, a decline primarily focused in technology shares.
Is this the start of something of significance or is the decline only noise and profit taking following a sharp advance??
The rally since mid-April has been predicted by a change in monetary policy and high hopes of AI, both tenants have been challenged in recent days.
What will happen today?
Last night the foreign markets were down. London was down 0.26%, Paris down 0.57% and Frankfurt down 0.19%. China was up 0.14%, Japan down 0.65% and Hang Seng down 0.24%.
Futures are nominally lower ahead of tomorrow’s Jackson Hole speech by FRB Chair Powell. The 10-year is off 3/32 to yield 4.30%.
