Market Update: Insights on Fed Chair’s Jackson Hole Remarks

Message from Fed Chair Powell: “We will keep at it until we are confident the job is done.”

In a speech last Friday at the Jackson Hole Economic Policy Symposium 2022, Federal Reserve Chairman, Jerome Powell, made it purposefully clear that price stability is of critical importance to the long-term health of our economy; and therefore, current monetary policy will remain restrictive “until we are confident the job is done”. ^[1]

Although investors seemed prepared for the hawkish commentary, the S&P 500 fell 3.4% as the timeline for a Fed pivot to a more accommodative monetary policy stance now seems further distant than some may have hoped. Further, the odds are now likely a bit higher for a more protracted slowdown in economic growth.

However, as we have written previously, there are still some reasons to hold out hope for an economic soft-landing, or at least avoiding a deep recession. There still seems to be some pent-up consumer demand for goods and services, the labor market remains relatively robust with solid employment growth and income gains, corporate balance sheets are strong, and the banking system is well capitalized.

We expect volatility in the financial markets to stay elevated in the near term. The Fed still has a way to go on its quantitative tightening path, and we expect economic and corporate earnings releases in the coming months to contain a mixture of positive and negative results providing fodder for both bull and bear viewpoints and market volatility.

We also expect corporate earnings estimates to fall reflecting the anticipated slowdown in economic growth, which, along with still high inflation and increasing interest rates, may negatively impact stock valuations and prices. As such, we continue to have a cautious view on the economy and financial markets. Evidence of a deceleration in inflation would provide a basis for a more constructive viewpoint.

In the meantime, we advise clients to assess and plan for near-term liquidity needs but remain focused on long-term investment goals and objectives.

Please reach out to your investment team should you have any concerns regarding the financial markets, economy, or your portfolio. An assessment of your portfolio’s asset allocation in relation to your investment objectives and planning for near-term liquidity needs are always a beneficial exercise.