Latest / Markets with Megan: A Quick Financial Markets Update / The Fed's New Focus: Prices Over Jobs | S3 E163 | 08-28-26

Transcript

The Fed's New Focus: Prices Over Jobs | S3 E163 | 08-28-26 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: For those of us worried about inflation, we got some good news out of the Federal Reserve this morning.
• 0:05
  Megan Horneman: It's Friday, August the 28th, and this is Markets with Megan.
• 0:08
  Megan Horneman: If you like this podcast, you can subscribe, hit the alarm bell, share it with your friends, family, or colleagues.
• 0:14
  Megan Horneman: We go over those market moving events that we get on a regular basis, specifically about the economy, or for in this case, the Federal Reserve.
• 0:22
  Megan Horneman: Now, the Federal Reserve came out this morning and the Chairman Warsh delivered a speech to the Economic Symposium.
• 0:30
  Megan Horneman: This is the annual symposium that occurs in Jackson Hole.
• 0:33
  Megan Horneman: It's it has in the past been a market moving event.
• 0:36
  Megan Horneman: It's been where some chairmen have delivered information about their future projections on interest rate policy.
• 0:42
  Megan Horneman: And we got a very hawkish Federal Reserve chairman today in this speech.
• 0:47
  Megan Horneman: Now, some people don't want a hawkish Fed, but when like us being worried about inflation, it was good to see that he was addressing this and that they aren't getting soft on this because inflation is not going down.
• 1:00
  Megan Horneman: Inflation is an issue.
• 1:01
  Megan Horneman: We've been stuck here for more than five years, well above the Fed's target.
• 1:05
  Megan Horneman: And what we saw today was that he reiterated to the crowd that inflation is running above 2%.
• 1:12
  Megan Horneman: 2% still is their target rate.
• 1:14
  Megan Horneman: And the predominant focus now is on prices.
• 1:17
  Megan Horneman: And that's because the labor market remains quite stable.
• 1:20
  Megan Horneman: So not worried about the labor market, they're gonna take a focus on prices.
• 1:24
  Megan Horneman: They did all he also did mention that while over the summer we got some readings that were better than expected.
• 1:30
  Megan Horneman: We've been here talking about this on the podcast that yes, things can be better and expected, but as expected is not good enough.
• 1:37
  Megan Horneman: So while they have been a little bit better than expected, it does not tell him that the underlying trends are meaningfully improving.
• 1:45
  Megan Horneman: And that's something that we've been saying too.
• 1:47
  Megan Horneman: It's still too high.
• 1:48
  Megan Horneman: It still is putting a strain on households.
• 1:51
  Megan Horneman: Um addressing those that say that this should just settle itself out and um should mean revert back to that 2% over time.
• 1:59
  Megan Horneman: He did mention that price stability is not self-executing, it's nor is it mean reverting.
• 2:05
  Megan Horneman: It's the Fed's job to deliver stable prices.
• 2:08
  Megan Horneman: And we have mentioned that for over five years we've been above the Fed target.
• 2:12
  Megan Horneman: It's time for the Fed to do their job.
• 2:15
  Megan Horneman: He did also say that there's more than half of that PCE basket, which is the inflation indicator that they looked like to look at, are growing above 3%.
• 2:23
  Megan Horneman: That's unacceptable.
• 2:25
  Megan Horneman: And when you talk about financial conditions, so if financial conditions were very, very tight, that's where you might see the chairman say, okay, inflation is a bit of a problem, but that we're worried about hiking too aggressively or doing anything major with monetary policy because moneting because financial conditions are very restrictive and it could hurt the economy.
• 2:45
  Megan Horneman: But it's not, and we've talked about that.
• 2:47
  Megan Horneman: Financial conditions are not restrictive.
• 2:50
  Megan Horneman: There's liquidity out there, look at stock markets, look at credit markets.
• 2:54
  Megan Horneman: And he did mention that there's no indication to him that financial conditions are restrictive.
• 2:59
  Megan Horneman: So the economy actually probably could withstand an interest rate hike.
• 3:03
  Megan Horneman: Um, the one thing that they talked about with their task forces that they're developing, they are progressing.
• 3:08
  Megan Horneman: Um, but one of them is how often should the Fed communicate with the public?
• 3:12
  Megan Horneman: And the these uh press conferences that they have on a regular basis, this is something that came into play during emergency measures that were needed to have the public get full transparency.
• 3:24
  Megan Horneman: We don't need that anymore.
• 3:26
  Megan Horneman: Um, and he mentioned that that forward guidance that's been given can inhibit some of those policymakers the freedom of maybe changing their view if things change.
• 3:35
  Megan Horneman: And he actually believes that a quieter central bank will be help them to be able to meet their objectives much better than being a bank where they're stuck to these quarterly type of you know economic projections.
• 3:48
  Megan Horneman: So a market's reaction to this is at first we saw some weakness in the short end of the yield curve.
• 3:55
  Megan Horneman: That makes sense because now there's more than a or roughly a 50% chance that you'll get a rate hike in September.
• 4:01
  Megan Horneman: We still think that that is is very much on the table, especially after this speech today.
• 4:06
  Megan Horneman: Long end of the curve, where this is where we can see you lose that long end of the curve if there is not a lot of credibility around being able to get inflation down.
• 4:16
  Megan Horneman: That actually was a little yields, were actually relatively tame on that side of the curve.
• 4:21
  Megan Horneman: Equities, they're um slightly lower right now.
• 4:24
  Megan Horneman: It's been they've been up and down throughout the day.
• 4:27
  Megan Horneman: Um, this is behind us.
• 4:28
  Megan Horneman: It is something that the market's been waiting to happen.
• 4:31
  Megan Horneman: You know, remember, we'll roll into September next week.
• 4:33
  Megan Horneman: September tends to be a very volatile time from a market perspective.
• 4:37
  Megan Horneman: So we will see how the markets open up as after we've gotten past this speech and then what we see in the in the next couple weeks when it comes to the next Fed meeting.
• 4:45
  Megan Horneman: That's all we have today.
• 4:46
  Megan Horneman: If you want a history of our podcast, you can go to marketswithbacon.fm.
• 4:49
  Megan Horneman: Thank you.