The Federal Reserve continues to tell the market that it is serious about conquering inflation, even if it means damage elsewhere. But the market still finds it difficult to take it seriously. So next week it will be up to the chairman of the Fed, Jerome Powell, to continue the case. The central bank leader will address his colleagues at 10 a.m. ET on Friday at the Fed’s annual symposium in Jackson Hole, Wyoming. This year’s focus at the Kansas City Fed-sponsored event will be “Reassessing Constraints on Economics and Politics.” Market participants will be looking for clear guidance on how far policy makers seek to push the fight against inflation, what the criteria will be and what the consequences of the fight might be. “The market is as data dependent as the Fed, if not more so. [The market wants] just some clarity on how he sees price stability coming,” said Quincy Krosby, chief equity strategist at LPL Financial. In a summer that has seen the most aggressive pace of Fed policy tightening since of the early 1980s by then-Chairman Paul Volcker, However, the market maintained a sunny disposition. The S & P 500 is up about 17% on better-than-expected corporate earnings, and the belief that the Fed will take as soft an approach as possible in its battle against inflation. This reaction seems to contradict statements by several Fed officials who have said that inflation is the main challenge right now and requires a whatever it takes. Determined to be peaceful Earlier this week, St. Louis Fed President James Bullard told The Wall Street Journal he would like to see a third straight hike of 0.75 points e.g rcentuals of interest rates at the September meeting. Minneapolis Fed President Neel Kashkari said Thursday that he is committed to fighting. inflation and is not sure whether it will not come at the cost of a recession. And San Francisco Fed President Mary Daly said she expects the Fed to hold rates steady once they reach a restrictive level, contrary to market expectations for a rate cut in 2023. Markets, however, they have continued to rise even as Fed officials warn of more rates. increases, as was the case with Gov. Michelle Bowman, who said earlier this month that the “similar-sized” rate increases are likely to be needed by three-quarters of a point. “Risk markets seem determined to read a conciliatory message into Fed communications that we believe simply isn’t there.” Citigroup economist Andrew Hollenhorst said in a note this week. “A committee rating its ‘determination’ to fight inflation is unlikely to get substantially worse as long as core inflation remains well above target and does not slow convincingly.” But the week ended on a sour note, and it could be because comments from Bullard and others began to resonate with investors. “This year’s Jackson Hole Symposium comes at a critical time for monetary policy,” Matthew Luzzetti, chief economist at Deutsche Bank, told clients in a note. “Officials are planning how to come down from this ‘unusual’ rate of tightening in a way that maintains credibility in the fight against inflation and maintains the prospects for a soft landing.” The warnings are echoing on Wall Street. Bank of America Chief Equity Strategist Michael Hartnett warned that the current market rally is likely just a bearish rally that could unravel as investors realize the Fed still has a lot of work to do to deal with inflation. Economists at the bank said even the recent spate of better-than-expected jobs and retail spending news should be viewed with caution as “stronger incoming data reduces the likelihood that the economy to fall into recession in the near future, but it is likely to increase the risks of a hard landing over time, as it could mean more tightening by the Fed.” Market prices have been tipped toward a half-point rate hike next month, and the Street doesn’t expect Powell to provide any clear signals about which direction he’s leaning. “How far are you prepared to go to achieve price stability?” LPL’s Krosby said. “That’s ultimately what the market wants to know, and I’m not sure it’s willing to tell us.”
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