A balancing act
With a 30-basis-point month-over-month decrease in core inflation, to 4.35 percent as of the end of August, alongside a jobs report that pointed to 187,000 new hires, a 30-basis-point increase in unemployment and a 20-basis-point increase in wage growth, the Fed’s present stance appears to have changed little. Such a perspective was exemplified further at the Jackson Hole Economic Policy Symposium, where Chairman Jerome Powell acknowledged the latest reports as a “welcome development,” yet stated that inflation remains “too high.” At the same time, Powell discussed the risks of moving too aggressively to combat it: “Given how far we have come, at upcoming meetings we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks,” he said.
In turn, many have interpreted this language, alongside the incoming data, as making the Fed possibly more cautious in its policy, yet not tempering its conviction. “It is very likely that the Fed will take a pause in making any changes during its September meeting,” predicted Bryan Kenny, president & principal at Bandon Capital Advisors.
Still, Kenny emphasized the importance of this priority, and any possible conflicts that it may have with the current election cycle as being null. “There is a false notion that because we are in an election cycle, the Fed will lower rates next year, but we don’t believe that will happen unless there is a decline in economic growth. They have been steadfast in pursuing a target of 2 percent inflation, and we simply aren’t there yet,” he added.
