In a succinct speech, Jerome Powell once again reminded the markets not to expect a “pivot” from the US central bank any time soon. His comments weren’t significantly different from what we saw in the FOMC minutes.

  • The labor market is too tight.

The labor market is particularly strong, but it is clearly out of balance, with demand for workers substantially exceeding the supply of available workers.

  • The Fed is focused on easing demand.

Restoring price stability will take some time and requires using our tools  forcefully to bring demand and supply into better balance.

  • A recession won’t necessarily mean rate cuts.

… we must  keep at it until the job is done. History shows that the employment costs of bringing down inflation are likely to increase with delay, as high inflation becomes more entrenched in wage and price setting.

  • Expect economic pain.

While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will  also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.

 

  • Financial conditions remain relatively accommodative, and the Fed would like to see more tightening.

 

 

  • The probability of a 75 bps rate hike in September is nearing 80%.

 

  • Overall, regional Fed manufacturing indices paint an ugly picture of factory activity at the national level.

 

 

US Economy

 

  • Savings continue to slow.

 

 

  • The Conference Board’s index remains well above the University of Michigan’s measure.

 

Source: @TheTerminal, Bloomberg Finance L.P.

 

  • Typically, a recession ensues shortly after the spread between the Conference Board’s expectations and current conditions indicators bottoms.

 

 

Market Data

 

  •  Rising real yields are a headwind for growth stocks.

 

 

  • The S&P 500 is about 15% above long-term support.

 

 

  • Historically, September has been the worst month for stocks. But the sell-off has already begun.

 

 

  • Tech funds saw substantial outflows while financials are finally registering inflows.

 

 

  •  US real yields continue to climb, pressuring stocks.

 

 

  • How long has it been since a $25+ billion IPO?

 

 

Quote of the Week

 

“I have no special talent. I am only passionately curious.”  Albert Einstein

 

Picture of the Week

 

 

 

All content is the opinion of Brian J. Decker