Equities and bonds saw increased volatility on Friday of last week as Fed Chairman Powell dashed hopes of a Fed pivot.
Investors were reminded last week that one of the Fed’s primary functions is to maintain stable inflation. Many were expecting a Fed pivot away from rising interest rates, but those hopes were dashed by Powell’s speech at the Jackson Hole, Wyoming Economic Summit last Friday. Prior to Powell’s speech, the market was pricing in a 48% chance of a 75 basis point in September. After Powell’s speech, the market is now showing a 68% probability of a 75 basis point rate hike.
While consumer sentiment remains stable, there is increasing evidence the U.S. consumer is scaling back purchases.
Yet, many retail companies admit that high-income households still have discretionary income to purchase goods. We may see further discretionary income in the hands of those who can afford to spend it, as the Biden administration announced the relief of debt for many holders of student loan debt. Meanwhile, the housing numbers are abysmal and manufacturing data is worsening. The Jobless Claims eased last week, but the big surprise may be in the Jobs Report as the market is expecting a drop in jobs added.