Powell's Jackson Hole Speech

Observant1

Excerpts from Jerome Powell's Jackson Hole speech are below.
The S&P 500 declined 3.37% while the Nasdaq declined 3.94% today.

"The labor market is particularly strong, but it is clearly out of balance, with demand for workers substantially exceeding the supply of available workers. Inflation is running well above 2 percent, and high inflation has continued to spread through the economy. While the lower inflation readings for July are welcome, a single month's improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down."

"Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy. Committee participants' most recent individual projections from the June SEP showed the median federal funds rate running slightly below 4 percent through the end of 2023."

"Our responsibility to deliver price stability is unconditional. It is true that the current high inflation is a global phenomenon, and that many economies around the world face inflation as high or higher than seen here in the United States. It is also true, in my view, that the current high inflation in the United States is the product of strong demand and constrained supply, and that the Fed's tools work principally on aggregate demand. None of this diminishes the Federal Reserve's responsibility to carry out our assigned task of achieving price stability."

Full speech

Crash

And of course, there is the expected Market overreaction. Always climbing that wall of worry. On a daily basis, Mr. Market's reacting, rather than responding to input and news. Never with moderation, it seems to me.

hank

Markets not like the speech!

Bumpy ride today.




( @Crash - Your response appears directed at an earlier video. My bad!)

Crash

maybe he should have steered around? Some things can't be predicted. Like the blizzard over Nome I went through--- in a twin engine prop-driven Beechcraft which was already pretty ancient at the time. My buddies were all puking in their hats. And yet, our pilot found a hole in the storm and managed to get down, while big airliners were turning around to return to Anchorage.

Old_Joe

This is a very unusual situation. Until the last few years, unemployment was normally roughly in the 4 to 6% range, and when the Fed was on a tightening binge it would typically tend to increase that by at least a few percentage points.

Since we now have a situation where unemployment is virtually zero (many job openings are going unfilled) it would seem that it would take a very large amount of "tightening" to make a significant difference.

Observant1

My expectation is that inflation will remain higher than expected for longer than expected.
The Fed may need to be more aggressive than many anticipate.

Old_Joe

Yes, that's exactly what I'm thinking also. This may suggest coming turmoil in the bond markets, especially for "junk", I would think.

Crash

Makes sense to me, @Old_Joe and @Observant1.

I see a big variable, a big issue with the way gummint manipulates and re-defines the sadistics it uses, over the years. Decades, in fact. Ever since I can remember, in fact. So, what are those sadistics actually telling us? It's anyone's flaming guess. When anyone working even part-time is considered employed, but what they need is a full-time thing. Full-time students making pin-money? "Employed." Students employed P/T to try to pay for university? "Employed." What about the ones who bring home the bacon, the bulk of a family's income? Whether female or male? I know, I know: there's a question in the surveys asking whether anyone working P/T would prefer to be working F/T. Our household was selected at random many years ago to answer the employment survey by punching buttons on the phone.

...But then you have all of the distinctions, cut-outs, rearrangements of the sadistics. Look at those numbers, don't look at THOSE OTHER numbers. Like a Chinese menu. Choose 1 from Column A and 2 from Column B, then call me in the morning. Acccchhh. "Lies, damnable lies, then in its own category: SADISTICS.

LewisBraham

Isn't it interesting how the Fed can make statements like "The labor market is particularly strong, but it is clearly out of balance, with demand for workers substantially exceeding the supply of available workers." without acknowledging the fact that people having jobs is a good thing, and maybe a more important thing than the inflation itself? For the first time after decades of globalization, U.S. labor has a little wage and benefit negotiating power perhaps and the Fed is charged with putting a stop to that. Why aren't the pros and cons at least considered of what a hard landing might mean for labor and publicly debated?

PRESSmUP

Observant1 said:

My expectation is that inflation will remain higher than expected for longer than expected.
The Fed may need to be more aggressive than many anticipate.

I was watching Bloomberg Surveillance, who historically does a much better job than alternatives when discussing/analyzing Fed moves and rates in general. They interviewed a number of Fed Presidents, and I got the same impression as you described...higher and longer. A few were much more conversant and clear than Powell.

hank

I’m not buying it. Markets are still expensive perhaps. Maybe more downside next week. But I’m still optimistic 1-3 years out. Did a little after-hours buying with what little cash I stash in the Roth.

Powell seems to think, from his remarks, he’s another Paul Volcker and that today’s situation remotely resembles that of the 80s. But Volcker’s 80s followed a decade or more of rising inflation - brought on largely by the ‘baby boomers” joining the job force and buying their first homes, new cars, etc. Than, there was that little budget busting “peace keeping” mission in Vietnam.

Geez - Less than 2 years ago Powell and his Fed were trying to stoke higher inflation (when they weren’t busy trading the markets for their own personal gain). Now Humble Jerome intends to help the little fella by throwing him out of work. Having no income is a dandy way to “cool demand.” Yes Sir!

Crash

Cheers, @hank.

Old_Joe

"I’m not buying it."

@hank- not sure what it is that you're "not buying". Would appreciate a little more detail on that.

yogibearbull

Another 90% down day. Twitter Link

hank

Old_Joe said:

"I’m not buying it."

@hank- not sure what it is that you're "not buying". Would appreciate a little more detail on that.

I don’t think the Fed wants to slam on the brakes and send financial markets plunging. They might like us to think that. More smoke and mirrors in Powell’s commiserative messaging me thinks. Something of a phantom inflation dragon being slain here based on a lot of one-time factors (pandemic, supply bottlenecks, stimulus checks, Ukrainian impact on grain / energy, financial market excesses). Sure, inflation is real. But it’s not deep seated in the way it was in the 70s & 80s and the numbers have been improving. Surely Powell is aware of the differences.

Volcker looks a lot better in hindsight. I lived through that multi-year period of recession, layoffs, high unemployment. Wasn’t very pretty.

BaluBalu

Thanks, @yogibearbull. Very good table with 90% stats. When I clicked on the Twitter link, it took me to a tweet about today's stat but not to a table you included in your post. That is an interesting table, which shows May was volatile and indecisive, where as June had a pattern.

Who are your favorite market tweeters? Feel free to send me a PM.

Thanks.

Old_Joe

@hank- No, I don't think that the Fed is going to slam on the brakes... more like downshifting through about eight gears. My hunch is that this exercise will take about 18/24 months. If there's a significant worldwide recession that may take some of the pressure off the Fed.

johnN

Short Term traders - bad sentiments, bearish, doom gloom/ shorts sales make sense

Long term 2-5 yrs -maybe good time to add positions/buy more and you maybe laughing your ways to the bank 5 yrs from today if we do have market recovery/ bullish scenario


Still waiting but i did buy more last 8 wks...

Hang tight very volatile next few weeks -months, maybe another 7 10% leg down testing June's lows ( many gaps unfulfilled)

yogibearbull

@BaluBalu, that table was posted within that Twitter link chain.

fred495

With extremely low unemployment and still many unfilled jobs looking for applicants, it seems that inflation may remain at a fairly high level for longer than many expect. Hence, the Fed may have to be quite aggressive in its tightening process over the next couple of years to achieve its stated goals. The markets could experience some tough times down the road.

As David Rosenberg suggests: "Play the long game by being patient, being nimble, since intermittent rallies will come and go, and focusing mostly on capital preservation." This, it seems to me, is particularly good advice for retirees.

Along those lines, two funds that I have been following performed quite well in yesterday's market crash. PGAGX gained 0.47%, and has a YTD gain of 8.44%. FARIX lost only 0.32%, but has a YTD gain of 5.22%.

Good luck,

Fred

catch22

Interest rate increases......of benefit to slow down inflation; OR whether that the FED had to do something to appear to be in control of whatever and doing it's work???

--- What are the three tasks mandated to the Federal Reserve bank?
It is the Federal Reserve's actions, as a central bank, to achieve three goals specified by Congress: maximum employment, stable prices, and moderate long-term interest rates in the United States.

AND there is the dual mandate, which is often mentioned:
The Federal Reserve’s dual mandate is “stable prices” and “maximum employment,” referring to inflation and unemployment. It sounds complicated but means ensuring that the prices you pay for goods and services remain relatively stable over time and that everyone who wants a job in the U.S. economy can find one.

The dual mandate represents the two economic objectives empowering the Federal Reserve’s every move. In other words, the Fed uses the federal funds rate rate to steer the economy toward its dual mandate, while also looking at it as an indication of whether it’s time to attempt to prop up the economy with a rate cut or slow it down with a rate hike.

'Course, as with the market melt/financial crisis of 2008; the FED may become wholly involved with fixes, as needed.

Inflation is global, yes? Two years of Covid impacted so many areas. A crazy Russian further impacted global inflation in the energy sectors. Climate extremes in many countries has also impacted food inflation.
IMHO, it is an exaggeration to blame inflation on excessive fiscal support in the United States. Fiscal support was needed to "hand hold" our economic melt from Covid. Acting on its own, the FED can have only a limited effect on global prices; meaning inflation in the United States.

Higher interest rates to force inflation to 2% ? How many portions of an economy will have to be broken to obtain 2% ?

This is not Paul Volcker's inflation of the early 1980's. I've been there and done that, too.

I remain skeptical of the FEDS plan.

Remain curious,
Catch

Old_Joe

@Catch22- I think that we're on the same wavelength here...

hank

Despite the clobbering this week, most of the things I watch are still above the lows reached a month to 6 weeks ago. TROW is one good example, closing above $221 yesterday after bottoming around $213. While I no longer fiddle with DKNG, the current $16.00+ is well above the $10-12 where it bottomed 6-8 weeks ago. ARKK, too, is above its low for the year, even after falling around 6% yesterday.

johnN

I am little concerned w USA jobs market/ data Feds plans, recessions, uncontrolled inflation....

I am more concerned w other parts of world - EU USSR and especially CHINA economy -housing bubble [??Lehman brothers 2.0) -c19 frequent recurrent Locks Downs -recession surely pull all of us down/sink whole global economy

If that the case sp500 head toward 2900 Triple dip [april 2020, early 2022, and late 2022-2023)


Sp500 severe resistance near below 3900 if breaks ...waterfall