Blog At Jackson Hole, Fed Reinforces Policy Stance The Fed chair’s high-profile speech emphasized the central bank’s focus on taming inflation.
Federal Reserve Chair Jerome Powell is a good golfer, and if (as I thought going in) the goal of his speech at the Jackson Hole Symposium was to strike the ball down the middle of the fairway, then he achieved it – with perhaps a gentle draw in a hawkish direction. Powell’s clear, brief reiteration of the Fed’s monetary stance lent support to PIMCO’s outlook for perhaps one more interest rate hike this fall followed by an extended pause. He also noted Fed policy is likely to remain highly data-dependent. Prior to Powell’s speech, some observers (though not PIMCO) speculated he might delve into a technical discussion of neutral interest rates or even float a trial balloon in the direction of raising the Fed’s inflation target. He did none of that. Instead, his speech was a direct and thoughtful summary of the sources of post-pandemic inflation, the Fed’s policy response to date, and the outlook for the U.S. economy, inflation, and policy in the quarters ahead. His speech was about reinforcing previous communications, not about signaling a change in direction, tactics, or goals. Four key messages related to the Fed’s outlook, all of which Chair Powell had conveyed in previous press conferences and interviews: The Fed is not contemplating an increase in its 2% inflation target. Estimates of r* are uncertain, but the Fed judges that the policy rate is restrictive and above r*. (R-star, or r*, is the estimated real rate of interest that has a neutral impact on economic growth, neither stimulating nor stifling.) Fed officials likely need to see some additional softening in the U.S. labor market and a downshift in wage inflation to be confident that price inflation is on a trajectory toward the 2% longer-run target. Evidence of above-trend growth or continued tight labor markets could call for higher rates. Powell concluded by restating the theme of his speech last year at Jackson Hole: The Fed “will keep at it until the job is done” (that is, restoring price stability). While data over the past year likely has Fed officials believing that a “soft-ish” if not soft landing for the U.S. economy is in sight, Powell made clear that a “no-landing” scenario – in which the Fed accepts price inflation at current rates in exchange for avoiding some pain in the labor market – is not in the Fed’s plan.
Asset Allocation Outlook When Markets Diverge, Opportunities Emerge Shifting dynamics among global economies and markets present a range of opportunities for multi-asset portfolios.
Economic and Market Commentary The Cost of Cash: A $6 Trillion Question In this PIMCO Perspectives, we examine how the return of elevated bond yields comes at an opportune time to consider shifting out of cash.
Blog The Fed: Stuck On Hold for Now Despite the reacceleration of inflation and enduring labor market strength, the Fed remains focused on downside risks.
Blog Why Yield Matters Attractive starting yields underpin our constructive outlook for fixed income.
Viewpoints Will the True Treasury Term Premium Please Stand Up? Various methods to estimate this key bond market gauge differ on details but appear to signal rising investor compensation.
Blog ECB: Eyeing a June Rate Cut While the European Central Bank refrained from declaring victory at its April meeting, a June rate cut seems increasingly likely.
Blog Persistent Inflation Pressures Could Delay Fed Action The March U.S. inflation report and other macro data will likely prompt a change in the Federal Reserve’s trajectory in 2024.
Blog The Fed: Stuck On Hold for Now Despite the reacceleration of inflation and enduring labor market strength, the Fed remains focused on downside risks.
Viewpoints Will the True Treasury Term Premium Please Stand Up? Various methods to estimate this key bond market gauge differ on details but appear to signal rising investor compensation.
Blog Persistent Inflation Pressures Could Delay Fed Action The March U.S. inflation report and other macro data will likely prompt a change in the Federal Reserve’s trajectory in 2024.