NEWS AND INSIGHTS | INSIGHTS
CIO Notebook : Powell Declares Inflation Fight Isn’t Over Yet in Jackson Hole
August 28, 2023
Powell’s Jackson Hole speech only reinforced the importance of data in determining policy for 2024.
In a highly anticipated speech at the annual Jackson Hole Economic Symposium, Federal Reserve Chairman Jerome Powell signaled that despite June and July’s softer inflation prints, inflation “remains too high” and that the Fed is “prepared to raise rates further if appropriate.” We believe Powell clearly articulated the two-sided nature of the risk that the Fed faces in the current environment: acknowledging that while more hikes may be needed to effectively anchor inflation to the target rate, the Fed runs the risk of overtightening which could have meaningful negative implications for growth, credit conditions, and ultimately employment and the consumer.
Coming into Jackson Hole, there was significant speculation Powell would potentially telegraph the Fed’s willingness to accept a modestly higher target rate of inflation. Instead, Powell reinforced that “two percent is and will remain our inflation target.” While some believe that a higher rate of inflation (and interest rates) could be digested by the U.S. economy over the long-term, the Fed remains actively engaged in a campaign to bring inflation down. In the Fed’s view, allowing for an elevated rate of inflation would likely be counterproductive in the short-term, particularly given its emphasis on the belief that there are long and variable lags to monetary policy and that there is still further transmission to come.
The market reaction to Powell’s speech was admittedly more muted when compared with last year’s event, but there was an incremental shift in rate expectations that is worth noting. According to Bloomberg, expectations for a Fed hike in September rose to 19.5% and to 45.7% in November. The fed funds target rate is expected to remain above 5% through June 2024 and rate cuts of less than 1% are expected through the end of next year – down from closer to 1.5% in early August. U.S. equities sold off modestly during the speech, but rebounded back to slightly positive in the afternoon as the takeaway for investors remains that the Fed continues to be data dependent and is operating on a meeting-by-meeting basis. We believe it is worth noting that both the equity and bond markets may have reacted more strongly to the (modestly) hawkish message if not for the rise in yields and the losses in equities posted month-to-date.
With earnings season drawing to a close, Fed action -- and the economic data on which that action is based -- will be the focus for investors over the next several weeks. Powell’s Jackson Hole speech only reinforced the importance of that data in determining policy for 2024.
IMPORTANT INFORMATION:
This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. This material is general in nature and is not directed to any category of investors and should not be regarded as individualized, a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types. Diversification does not guarantee profit or protect against loss in declining markets. Investing entails risks, including possible loss of principal. Investments in private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in private equity are intended for sophisticated investors only. Unless otherwise indicated, returns shown reflect reinvestment of dividends and distributions. Indexes are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.
Portfolio positioning views expressed herein are those of Neuberger Berman’s Investment Strategy Group (ISG), which may include those of the Neuberger Berman’s Asset Allocation Committee. Asset allocation and positioning views are based on a hypothetical reference portfolio. ISG analyzes market and economic indicators to develop asset allocation strategies. ISG works in partnership with the Office of the CIO. ISG also consults regularly with portfolio managers and investment officers across the firm. The Asset Allocation Committee is comprised of professionals across multiple disciplines, including equity and fixed income strategists and portfolio managers. The Asset Allocation Committee reviews and sets long-term asset allocation models, establishes preferred near-term tactical asset class allocations and, upon request, reviews asset allocations for large diversified mandates. Asset Allocation Committee members are polled on asset classes and the positional views are representative of an Asset Allocation Committee consensus. The views of the Asset Allocation Committee and ISG may not reflect the views of the firm as a whole and Neuberger Berman advisers and portfolio managers may take contrary positions to the views of the Asset Allocation Committee or ISG. The Asset Allocation Committee and ISG views do not constitute a prediction or projection of future events or future market behavior. Defensive positioning generally means an underweight bias on allocations to risk assets such as equities and alternatives. Positioning views may change over time without notice and actual client positioning may vary significantly. Discussion of yield characteristics or total returns of different asset classes are for illustrative purposes only. Such asset classes, such as equities and fixed income, may have significantly different overall risk-return characteristics which should be consider before investing.
The information in this material may contain projections, market outlooks or other forward-looking statements regarding future events, including economic, asset class and market outlooks or expectations, and is only current as of the date indicated. There is no assurance that such events, outlook and expectations will be achieved, and actual results may be significantly different than that shown here. The duration and characteristics of past market/economic cycles and market behavior, including any bull/bear markets, is no indication of the duration and characteristics of any current or future be market/economic cycles or behavior. Information on historical observations about asset or sub-asset classes is not intended to represent or predict future events. Historical trends do not imply, forecast or guarantee future results. Information is based on current views and market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.
Discussions of any specific sectors and companies are for informational purposes only. This material is not intended as a formal research report and should not be relied upon as a basis for making an investment decision. The firm, its employees and advisory accounts may hold positions of any companies discussed. Nothing herein constitutes a recommendation to buy, sell or hold a security. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. Investment decisions and the appropriateness of this content should be made based on an investor's individual objectives and circumstances and in consultation with his or her advisors.
Neuberger Berman Investment Advisers LLC is a registered investment adviser.
The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC