Last month at The Jackson Hole Symposium, Fed Chair Jerome Powell signaled a cautious shift in U.S. monetary policy. He announced the Fed’s move away from “average inflation targeting,” reaffirming a flexible commitment to the 2% inflation goal while acknowledging the labor market’s unusual balance of slowing job growth and tight supply. Powell struck a dovish tone, suggesting that a rate cut as early as the September FOMC meeting may be warranted, though he emphasized a data-driven and flexible approach rather than a preset path as inflation concerns still loom. Markets rallied on his remarks, with stocks rising, Treasury yields falling, and futures pricing in roughly 90% odds of a September cut. Powell also underscored the Fed’s independence amid political pressure from the White House, positioning his speech as both a policy pivot and a defense of central bank credibility.
Inflation has stayed above its original target, with Core PCE—which excludes volatile food and energy prices—increasing 0.3% for the month (same as June), pushing its annual rate up to 2.9% from 2.8% in June, marking the highest annual rate since February. Headline PCE rose 0.2% month-over-month in July, a slight deceleration from June’s 0.3%, inline with expectations. Year-over-year headline inflation held steady at 2.6%, unchanged from June, closer to the 2% inflation goal the FED historically has strived for and below the Atlanta Fed’s Q3 growth forecast of 3.5% annualized GDP growth.
As much of the investment world has, our team has been keeping an eye on the labor market. Nonfarm payrolls are projected to increase by only ~75,000 jobs in August, nearly identical to July’s sluggish 73,000 gain, while the unemployment rate is expected to tick up to 4.3% from 4.2%. Jobless claims data offered little reassurance—initial claims eased slightly to 229,000, and continuing claims held elevated at 1.95 million, underscoring steady but weak labor conditions. Sentiment indicators highlighted the growing strain: the share of workers saying jobs are “hard to get” climbed to 20%, while those viewing jobs as “plentiful” fell to under 30%, marking the weakest differential since early 2017. Unfortunately, the group perhaps most impacted has been younger college graduates who are bearing disproportionate effects of labor market softening, with their job prospects trending significantly weaker than historical norms and the broader population.
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