Blog At Jackson Hole, Fed Reinforces Policy Stance The Fed chair’s high-profile speech emphasized the central bank’s focus on taming inflation.
Federal Reserve Chair Jerome Powell is a good golfer, and if (as I thought going in) the goal of his speech at the Jackson Hole Symposium was to strike the ball down the middle of the fairway, then he achieved it – with perhaps a gentle draw in a hawkish direction. Powell’s clear, brief reiteration of the Fed’s monetary stance lent support to PIMCO’s outlook for perhaps one more interest rate hike this fall followed by an extended pause. He also noted Fed policy is likely to remain highly data-dependent. Prior to Powell’s speech, some observers (though not PIMCO) speculated he might delve into a technical discussion of neutral interest rates or even float a trial balloon in the direction of raising the Fed’s inflation target. He did none of that. Instead, his speech was a direct and thoughtful summary of the sources of post-pandemic inflation, the Fed’s policy response to date, and the outlook for the U.S. economy, inflation, and policy in the quarters ahead. His speech was about reinforcing previous communications, not about signaling a change in direction, tactics, or goals. Four key messages related to the Fed’s outlook, all of which Chair Powell had conveyed in previous press conferences and interviews: The Fed is not contemplating an increase in its 2% inflation target. Estimates of r* are uncertain, but the Fed judges that the policy rate is restrictive and above r*. (R-star, or r*, is the estimated real rate of interest that has a neutral impact on economic growth, neither stimulating nor stifling.) Fed officials likely need to see some additional softening in the U.S. labor market and a downshift in wage inflation to be confident that price inflation is on a trajectory toward the 2% longer-run target. Evidence of above-trend growth or continued tight labor markets could call for higher rates. Powell concluded by restating the theme of his speech last year at Jackson Hole: The Fed “will keep at it until the job is done” (that is, restoring price stability). While data over the past year likely has Fed officials believing that a “soft-ish” if not soft landing for the U.S. economy is in sight, Powell made clear that a “no-landing” scenario – in which the Fed accepts price inflation at current rates in exchange for avoiding some pain in the labor market – is not in the Fed’s plan.
Economic and Market Commentary Fed Policy: One Month of Good Data Is Not Enough Good news on U.S. inflation in May did not sway the Federal Reserve to signal interest rate cuts could come sooner.
Blog ECB: Lower Cruising Altitude While the European Central Bank cut policy rates by 25 basis points to 3.75% on its deposit facility, the trajectory beyond June remains unclear.
Secular Outlook Yield Advantage The post-pandemic inflation shock and rate-hiking cycle produced a generational reset higher in bond yields, creating a compelling multiyear outlook for fixed income as inflation recedes and risks build in other markets.
Blog April Inflation Report Unlikely to Alter Fed’s Path April’s U.S. inflation report likely offers some comfort to Federal Reserve officials, but rate cuts are unlikely until we see a more substantial deceleration in inflation.
Strategy Spotlight Income Strategy Update: Capitalizing on the Global Opportunities in Fixed Income With the potential for higher-for-longer yields across countries, we see the global fixed income opportunity set as the most attractive in years.
Viewpoints Navigating the Challenges: EU Securitisation Regulation and Its Effects on Investors and Markets Regulation has transformed the EU securitisation market, but there are further improvements that can be made.
Asset Allocation Outlook When Markets Diverge, Opportunities Emerge Shifting dynamics among global economies and markets present a range of opportunities for multi-asset portfolios.
Economic and Market Commentary Fed Policy: One Month of Good Data Is Not Enough Good news on U.S. inflation in May did not sway the Federal Reserve to signal interest rate cuts could come sooner.
Blog April Inflation Report Unlikely to Alter Fed’s Path April’s U.S. inflation report likely offers some comfort to Federal Reserve officials, but rate cuts are unlikely until we see a more substantial deceleration in inflation.
Blog The Fed: Stuck On Hold for Now Despite the reacceleration of inflation and enduring labor market strength, the Fed remains focused on downside risks.