Markets were mixed as investors struggled with the idea of higher interest rates for longer.
Much of the attention last week was on the much anticipated speech by Fed Chairman Powell at the Jackson Hole Economic Symposium. His speech was largely as expected, hawkish with a hint of hope. While Powell reiterated that the Fed was prepared to raise rates further, they are also determined to “proceed carefully” moving forward. Powell’s speech did little to change market expectations. Fed Futures continue to show an 80% probability of a pause in rate hikes in September.
The Fed’s own economic data is positive and not yet indicative of a recession—hence their view that they could raise rates again if needed.
The Atlanta Fed recently updated their projection of 3rd quarter GDP to +5.9%. The Chicago Fed’s National Financial Conditions Index loosened again last week and more than 90% of the internal indicators of that index are looser than average. The St. Louis Fed's Financial Stress Index is at -0.67, which is a level that has not been associated with recessions, historically. The job market continues to be resilient. If the JOLTs number is expected to come in higher this week, which would mean consumers are unlikely to curb spending habits with the idea there are jobs a plenty.
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