The Fed just concluded their annual Jackson Hole meeting and reiterated their commitment to bringing down inflation. This has been a consistent message for the last several meetings as they must project confidence that they can accomplish it. If the global markets lost faith in their ability to control inflation the consequences would be dire. They have also stayed consistent that their decisions at their regularly scheduled meetings are not made in advance and that they will decide what to do at that time based on the available data. Their next policy meeting ends on September 21st where we will see what action they will take. The good news is that the inflation number that they primarily use is the PCE which showed a negative growth rate for July at -0.1% and core PCE which excludes gas and food prices grew by only 0.1%. There will be another opportunity before their meeting to see the CPI for August which hopefully will stay low and allow them to make a smaller move.
Unfortunately the market was hoping to hear that the Fed thought battle against inflation had been won and that less restrictive monetary policy was around the corner. Obviously one month of good readings isn’t enough for the Fed to declare victory, so the message they delivered was no big surprise. They have not backed themselves into a corner though and could still be less aggressive with their rate hikes at the next meeting depending on the data for August.
The next data point that is important for us to watch is the job openings for July that come out next Tuesday. As of June there were still 10.7 million job openings in the US, down from a high of about 11.9 million back in March. What the market is hoping to see is another significant decline in that number. With so many job openings, there are still over 4 million people quitting their job every month, presumably to take one with higher pay or other increased benefits. These job quits contribute to the big fear that the Fed has, persistent inflation. A level of around 5 to 7 million open jobs would be a more normal range and it will likely take some time to get back to those numbers.
For now we are in a holding pattern looking for good price opportunities. The market is well off its June low and hopefully doesn’t test that level again. If it does, then we will be buying as at that level the market was very attractively priced. It’s not a bad deal at today’s prices either. Our overall portfolio has money set aside in bonds that we can use to buy on dips, and if the markets reach new highs, rates are attractive enough to push money into bonds.