We heard from Jerome Powell today at Jackson Hole.
He was hawkish. Stocks went down.
Remember this, when listening to all of the jawboning about the Fed and interest rates, and the markets: The Fed can raise rates at any time they want, and in any amount. If they wanted to slay inflation, they could raise rates right now to 6% …7% … 8% — whatever they want.
They haven't. Instead, they continue to do a lot of talking.
Did we learn anything new today?
First, if we look back at the July Fed meeting, they raised rates to 2.25-2.50% (range), and Powell said they had reached the neutral level. He went on to say that they need to get to "moderately restrictive." And then he pointed to the committees published projections of 3.25-3.5% (at year end). That's another 100 basis points.
Fast forward one month, and today he said they are moving purposefully to a level that will be sufficiently restrictive, and said the current level (of neutral) is "not a place to stop or pause."
Nothing new there.
He went on to reference the 70s and 80s inflation period, and cited two former Fed Chairs, specifically their commentary on inflation expectations. Why?
As we've discussed here in my daily notes many times, the Fed is far more concerned about inflation expectations, than they are about inflation. If they lose control of expectations, people start pulling forward purchases, in anticipation of higher prices, creating a self-fulfilling upward spiral in prices.
On that note, the Fed shouldn't be overly concerned.
Here's a look at their favored gauge of inflation expectations …