Jerome Powell, chairman of the US Federal Reserve, second right, arrives for dinner during the Jackson Hole economic symposium in Moran, Wyoming, US, on Thursday, Aug. 24, 2023.
David Paul Morris | Bloomberg | Getty Images
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What you need to know today
A warning from Jackson Hole
Inflation “remains too high,” Federal Reserve Chair Jerome Powell said at the Fed’s annual retreat in Jackson Hole. So is economic growth — at least for the economy to hit a 2% inflation reading, a target that Powell insisted the Fed will not budge on. Interest rates, therefore, might continue going up and remain restrictive for longer, Powell warned.
Markets rebound
U.S. stocks rallied Friday, helping the S&P 500 and Nasdaq Composite snap a three-week losing streak. European markets closed slightly higher. Germany’s DAX inched up 0.07% even as data showed the country’s business sentiment worsening in August. Separately, shares of London-listed Watches of Switzerland plunged 20.9% after Rolex announced a deal to buy watch retailer Bucherer.
China’s rare earths dominance
China dominates the market in rare earth metals, which are key components in products like electric vehicle batteries and renewable energy systems. That makes U.S. supply chains vulnerable, U.S. Trade Representative Katherine Tai said in an exclusive interview with CNBC’s Martin Soong. “Where we want to be is in a place where our supply chains are more diversified.”
Add IPO to cart
Instacart, a grocery delivery company, filed paperwork Friday to list on the Nasdaq. It’d be the first significant venture-backed technology initial public offering since December 2021. (Arm’s IPO doesn’t count because the chip designer was a public company before Softbank bought it in 2016.) In March last year, Instacart slashed its valuation from $39 billion to $24 billion.
[PRO] Eyes on PCE and jobs data
This week, look out for the Personal Consumption Expenditure report coming out Thursday, and the August jobs report releasing Friday. Those two pieces of data will give a sign of whether the Fed will indeed continue raising rates, as Powell cautioned at Jackson Hole, or if inflation and the jobs market are cooling down enough for the central bank to keep rates unchanged.
The bottom line
If Federal Reserve Chair Jerome Powell tires of tweaking interest rates, he has a promising career ahead as a modernist poet. Like the masters before him, Powell’s words dance in the space between two meanings — surely a result of his ability to satisfy a dual, but oftentimes contradictory mandate.
“We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level,” Powell said, with my emphases added. On the surface, those remarks seem hawkish, a straightforward word of caution to markets: Higher rates! For a longer time! But that’s all they amount to: caution.
To put it another way, I can prepare and intend to have a salad for dinner if appropriate for my waistline. But if I see fried chicken, my salad plans are too easily dashed. Powell’s comments, then, say nothing, essentially.
To be fair, Powell admitted as much, saying that the Fed is “navigating by the stars under cloudy skies.”
If Powell is the poet, markets are the critics, reading against the grain. Despite the (ostensibly) hawkish tone of Powell’s Jackson Hole speech, markets, it seemed, seized on a tangential point and made it the whole narrative.
The quotation in question: “So far this year, GDP growth has come in above expectations and above its longer-run trend, and recent readings on consumer spending have been especially robust.”
Instead of dwelling on interest rate warnings, markets cheered the prognosis of a hotter-than-expected economy. The S&P 500 added 0.67% and the Nasdaq Composite gained 0.9%, giving both indexes their first winning week in four. Last week was also the Nasdaq’s best since mid-July. The Dow Jones Industrial Average advanced 0.7%, its best day since Aug. 7, but still suffered from a second consecutive losing week.
Markets applauding Powell’s speech may have been an unintended result — though we may never know what the speech’s aims were — since rising markets typically contributes to economic growth. That, in turn, keeps inflation and rates high.
The beauty of Powell’s words is that they are open to interpretation. The drawback of Powell’s words is that they are open to interpretation.
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