Jackson Hole—Limited Visibility, Bumpy Landing

In the wake of the Federal Reserve’s annual gathering in Jackson Hole, Stephen Dover, Head of Franklin Templeton Institute, conveys one clear message: interest rates aren’t coming down anytime soon.

In his day, Federal Reserve (Fed) Chairman Alan Greenspan was (in)famous for his irascible obscurity—often speaking without being fully understood.

In this year’s much-anticipated speech at the Fed’s annual central bankers’ gathering in Jackson Hole, Chairman Jerome Powell appears to have employed Greenspan’s speechwriter. Powell said a lot about the economy and inflation, but he obscured a great deal about future Fed policy. Yet beneath the (intended?) fog of his remarks was a worrisome message for devotees of soft-landing scenarios. Fasten seatbelts—the arriving passengers won’t enjoy a view of the majestic Tetons and should brace for a bumpy landing.

The initial market response has been minimal. Equity and bond prices bounced around immediately after the speech, but diverged somewhat by the close as stocks finished higher while bond yields rose. We’re not sure that’s right and here’s why:

Powell’s key points

To begin, Powell’s speech was a somewhat dull resuscitation of recent economic data, with a focus on the details of core personal consumption expenditures inflation (the Fed’s preferred measure). Having noted welcome declines in goods inflation and a probable decline in shelter inflation, Powell emphasized that non-housing core services inflation has been less responsive to either changes in the economy or to Fed tightening.

Powell also remarked that current Fed policy is already “restrictive,” meaning that the real (inflation-adjusted) fed funds rate is above broadly accepted ranges of what constitutes its “neutral” level.