In a dovish speech at the Fed’s Jackson Hole Monetary Policy Symposium on August 23rd, Chair Jerome Powell signaled that a rate cut is coming at the September meeting but said that the timing and pace would depend on the incoming data. Consistent with market expectations, Powell expressed more confidence in the inflation outlook and put more emphasis on downside risks in the labor market, where he said any further weakening would be “unwelcome.” 

Jan Hatzius, the Chief Economist at Goldman Sachs continues to expect that the August employment report will be stronger than the July report and that the FOMC will deliver a 25bp cut in September but think that a 50bp cut would be likely if the employment report is instead soft again. (1)

Federal Reserve Chair Jerome Powell said that he sees the bank’s restrictive monetary policy working to bring inflation down to its 2% annual target, and that the balance between supply and demand for goods, services, and labor in the U.S. economy has been restored. “Inflation is now much closer to our objective, with prices having risen 2.5 percent over the past 12 months,” Powell said in his Friday morning keynote address at the Fed’s Jackson Hole Monetary Policy Symposium. “After a pause earlier this year, progress toward our 2% objective has resumed. My confidence has grown that inflation is on a sustainable path back to 2%.” (2)

As the Democratic National Convention wrapped up the day before Chair Powell’s speech to central bankers, the political landscape is shifting. The DNC, like the RNC’s convention in July brought together a diverse array of voices from across the country and highlighted the pressing issues facing our economy. Powell’s remarks underscored the Fed’s commitment to supporting the economy amid ongoing uncertainties. Economic issues are at the forefront of this year’s U.S. presidential election, and Americans’ frustration with the higher cost of living has taken center stage. That has kindled a debate about why higher prices are still a pain point for many families—and how they got that way. Powell’s remarks in Jackson Hole underscored the Fed’s commitment to supporting the economy amid ongoing uncertainties.

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The yield on the 10-year Treasury climbed to 3.862% down from when I reported in my last Vegas Legal column earlier this year. The two-year Treasury yield, which more closely tracks expectations for the Fed, was at 3.999%. (4)

Looking ahead, the interplay between political developments and monetary policy will continue to shape the market landscape. As the election season heats up and the Fed navigates the challenges of the post-pandemic economy, investors will need to stay attuned to a wide range of factors.

In this dynamic context, it is more important than ever for investors to have a clear understanding of the market’s state and the forces driving it. By staying informed and maintaining a balanced perspective, investors can make sound decisions that align with their financial goals.

In this highly contested presidential election year, expect the unexpected. The markets dictate the economy, not the other way around. Plan and stay disciplined about your asset allocation strategies. When you need to be defensive, cash can be your friend. 

As always, I will be here to provide insights and analysis on the latest market trends and developments. Stay tuned for more updates in the next edition of “State of the Market.”

If you need to define whether you have any financial blind spots, please reach me directly at mmartiak@gmail.com

  1. Goldman Sachs Global Asset Management Research
  2. BARRON’S
  3. CME Fed
  4. Morningstar.com

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