Global Bonds Portfolio Manager at Janus Henderson Investors, Jason England has provided some commentary surrounding the Federal Reserve Chairman Jerome Powell’s speech on Friday at the Kansas City Fed’s annual policy forum in Jackson Hole, Wyoming:
Last year at the annual Jackson Hole Symposium as the hawks grew louder and increased in number around tapering, we suggested ignoring them and focusing on what Chair Powell had to say at the event.
This year the Federal Reserve has become more aligned on what is necessary to fight historically high inflation with even the most dovish members becoming hawks. Chair Powell shared the same hawkish tone as other Fed speakers we heard at the event even if the tightening will bring some pain to households and businesses.
The three main takeaways are taming inflation is job number one for the committee, the Fed Funds Rate needs to get to a restrictive level (3.5% to 4.0% depending on the Fed member), and the rate will need to stay higher until inflation is brought down to their 2% target thus cuts priced into the market for next year are premature. Chair Powell affirmed this guidance during his speech on Friday, yet, as expected gave no indication on whether they would do 50bps or 75bps at the September meeting.
Regardless of whether they hike 50bps or 75bps, as President Harker pointed out, 50bps is still a substantial size hike so it should not be taken as a dovish pivot as there is more work to be done on inflation and they will keep at it until the job is done. The committee will also have one more NFP report and one more CPI report prior to the September meeting that will influence their decision; as Powell stated, “the size will depend on the ‘totality’ of the data”.
