Jackson Hole Takes Center Stage as the Center of the Economic Universe This Week | Economy
Forget Wall Street or Main Street.
All eyes will be on the idyllic hamlet of Jackson Hole, Wyoming, this week as economists, politicians, market watchers and others gather in the Grand Tetons beginning Thursday for the Federal Reserve’s summer economic symposium.
It will be the first in-person gathering of the summer camp for economic gurus since 2019, with the signature event being a speech by Fed Chairman Jerome Powell on Friday, the same day the government releases a key inflation measure for July.
The personal consumption expenditures price index is expected to show a monthly drop in the rate of inflation excluding often volatile food and energy costs to 0.3% from the prior 0.6%. The gauge is one that Powell and other Fed officials follow closely in setting interest rate policy.
Powell may use the opportunity to double down on the central bank’s recent hawkish posture, which has seen the Fed raise interest rates by 75 basis points in its last two monthly meetings. Or he could use the occasion to clarify the Fed’s position as Wall Street suffers recent jitters after a summer rally that was born of better-than-expected inflation readings in July.
Much of the debate on Wall Street centered last week on whether the Fed will raise rates by 50 or 75 basis points when members next meet to consider monetary policy in September, following their traditional summer break in August.
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Last week, minutes of the Fed’s July meeting reinforced a hawkish view that Fed was far from done in raising rates. Dow Jones Industrial Average futures fell more than 250 points in pre-market trading Monday.
“Policymakers said they need to keep raising rates to an “appropriately restrictive” level to slow inflation and achieve price stability, but also acknowledged the risk of monetary policy being tightened more than necessary to achieve price stability,” Comerica Bank Chief Economist Bill Adams said on Friday.
“They also discussed the possibility of pausing rate hikes once rates are “appropriately restrictive” to assess their effect on economic activity and inflation, and implied rates could start coming back down to a neutral posture when inflation is “firmly on a path back to 2%,” Adams added.
“Comerica anticipates the Fed will hike their target rate by 0.50 percentage point in September and follow with 0.25 percentage point increases at its November and December meetings,” he said.” Thereafter, the Fed is forecast to pause as economic activity wanes and as inflation declines.”
In addition to Powell’s remarks, the week presents a good barometer of the state of the current economy, which seems to alternate daily between a half-full, half-empty glass type of analysis.
There will be readings on the state of the service sector, now growing more important to analysts as consumers switch their buying habits from goods to services. Friday will bring another take on consumer sentiment from the University of Michigan, a key element but one that has proven to be somewhat detached from actual consumer behavior of late. And more housing data is on tap following several negative reports that have the National Association of Home Builders proclaiming the housing sector has fallen into recession.
Last week, Natixis CIB released a report showing a large amount of new homes about to come onto the market at the very moment that mortgage demand has cratered due to rising rates. Coupled with overall declining sales of homes both new and existing and the housing market is likely set for a drop in prices following two years of record gains.
“Last year’s compressed home sale timelines are lengthening,” Realtor.com Chief Economist Danielle Hale noted last week in an online post. “For a third week in a row, homes are sitting on the market for a longer time than last year, and the gap has increased each week.”
While that may well bring some sense of balance to the overheated market, it also raises broader fears for the economy from the knock-on effect as housing slows down, builders push out construction timelines and buyers retrench.
One bright spot is that global supply chains, a leading cause of the “transitory” inflation that the Fed and White House officials hung their hats on during 2021’s price runup, is easing.
“The @RSMUSLLP supply chain index has moved back into positive terrain indicating it’s no longer a drag on growth,” Joseph Brusuelas, chief economist for RSM US, tweeted last week. “This is encouraging and will cause further easing in inflation & support US economic growth which should increase roughly 1.5% this quarter.”
No doubt Fed Chairman Powell will have more to say about that – and all other matters of economic data – this Friday.