Why are Markets Unhappy?

Markets have been unhappy coming out of the recent Jackson Hole Economic Symposium. U.S. equity markets did well coming out of the August meeting where the Fed raised the Fed Funds Lending by 0.75% to 2.25% - 2.5%. Much of that optimism was related to the hope that future increases would be more gradual.

However, coming out of the Jackson Hole Symposium, comments from the Federal Reserve chairman, Jerome Powell, were more pessimistic than some had hoped. In his keynote speech, Powell warned that the central bank’s mission to bring inflation in line would result in “some pain” for U.S. households and that the current environment, “Requires using our tools forcefully to bring demand and supply into better balance.”

Many economists had hoped for an increase of 0.50% in the September meeting, but Powell’s comments seem to indicate that a 0.75% increase is on the table. Market reactions have less to do with the magnitude of the increase (both are large) than with the Fed’s interpretation that inflation is still far from being in check. As Powell stated in his address, “Our responsibility to deliver price stability is unconditional.”

The next round of labor numbers will be important as labor and wage strength has been the ballast for monetary policy tightening.


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