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.
Viewpoints Mind the Supply: The Counterintuitive Impact of Higher Rates on U.S. Housing The dearth of homes for sale has underpinned the housing market’s surprising resilience and may further lift home prices despite reduced affordability.
Viewpoints Opportunities in Private Credit: Stepping In as Banks Step Out As banks pull back from many types of lending, demand for capital is outpacing supply, providing the best potential opportunities in private credit since the GFC.
Blog October CPI: Small Surprise, Large Market Reaction U.S. inflation cooled more than expected, and bond markets rallied, but the Fed is likely to remain in a long pause.
Asset Allocation Outlook Prime Time for Bonds In our 2024 outlook, bonds emerge as a standout asset class, offering strong prospects, resilience, diversification, and attractive valuations compared with equities.
Municipal Monthly October Municipal Market Update: Examining End‑of‑Year Trends Amid High Absolute Yields We review the latest developments in the municipal bond market and discuss how high absolute yields, coupled with a historically supportive end-of-year environment, may offer an attractive entry point for investors.
Strategy Spotlight Income Fund Update: Poised for Resilience and Potential Price Appreciation We see meaningful value in high quality, more liquid bonds that offer compelling yields and potential price appreciation should the economy weaken.
Blog Despite Resilient Data, Fed Signals Prolonged Pause Tighter financial conditions prompted Federal Reserve officials to take a step back from data dependence, and suggest a higher bar for future hikes.
Blog October CPI: Small Surprise, Large Market Reaction U.S. inflation cooled more than expected, and bond markets rallied, but the Fed is likely to remain in a long pause.
Blog Despite Resilient Data, Fed Signals Prolonged Pause Tighter financial conditions prompted Federal Reserve officials to take a step back from data dependence, and suggest a higher bar for future hikes.
Blog ECB on Autopilot The ECB may raise rates further, but we believe the yield sell-off makes European duration increasingly attractive.