Market Report for August 28, 2023

Ann Miller |

Jerome Powell, Chair of the Federal Reserve, gave a speech at the Jackson Hole Economic Policy Symposium on Friday, August 25, 2023. In his speech, Powell reiterated the Fed's commitment to bringing inflation down to its 2% target. He also acknowledged that the Fed's efforts to tighten monetary policy could lead to slower economic growth and higher unemployment.

Some of the key takeaways from Powell's speech are:

  • The Fed is "strongly committed" to bringing inflation down to its 2% target. Powell said that the Fed will continue to raise interest rates until inflation is "moving sustainably" down toward 2%.
  • The Fed is aware that its efforts to tighten monetary policy could lead to slower economic growth and higher unemployment. Powell said that the Fed is "mindful of the risks" of a recession, but he reiterated that the Fed's top priority is to bring inflation down.
  • The Fed is "prepared to use its tools" to bring inflation down, even if it means causing some economic pain. Powell said that the Fed is "not going to hesitate" to take action to bring inflation under control.

Powell's speech was widely interpreted as a signal that the Fed is prepared to continue raising interest rates aggressively in order to bring inflation down. This is likely to lead to higher borrowing costs for businesses and consumers, which could slow economic growth and lead to higher unemployment. However, Powell made it clear that the Fed is willing to take these risks in order to achieve its inflation target.

The markets reacted positively to Powell's speech, with stocks and bond yields rising. This suggests that investors believe that the Fed is taking the right steps to bring inflation under control. However, it remains to be seen how the economy will respond to the Fed's tightening cycle.

Some of the key questions that remain unanswered after Powell's speech are:

  • How high will the Fed raise interest rates? Powell did not provide any specific guidance on how high the Fed will raise interest rates. However, he did say that the Fed is "prepared to use its tools" to bring inflation down, even if it means causing some economic pain. This suggests that the Fed is willing to raise interest rates to a level that will significantly slow economic growth.
  • How will the economy respond to the Fed's tightening cycle? It is still too early to say how the economy will respond to the Fed's tightening cycle. However, there is a risk that the Fed's actions could lead to a recession.
  • What will the Fed do if inflation does not come down? If inflation does not come down, the Fed will have to decide whether to continue raising interest rates or to adopt other measures, such as quantitative easing.

Powell's speech was a significant event that will have a major impact on the economy. It remains to be seen how the economy will respond to the Fed's tightening cycle, but Powell's comments suggest that the Fed is prepared to take whatever steps are necessary to bring inflation down.

We continue to monitor the statements relating to policy and how it may affect your investments. As always, please contact us with any questions you may have.