Since the Great Recession FED's narrative has been to assist the economy by easing financial markets. Now rolling into almost 20 years of this process the current economy is facing inflation not seen for over 40 years. How determined is the FED willing to do in order to curb inflation? That is the million dollar question.
Every year in August the FED chairman would talk about the FOMC's thoughts on current state of the economy and what their predictions are for the future of the economy. This in a way is an opportunity for the FED to publicly address what potentially are concerns by the public regarding the economy.
We call the FED's public talks/conferences jawboning. A quick definition of jawboning:
the use of public appeals (as by a president) to influence the actions especially of business and labor leaders broadly : the use of spoke
The FED will often jawbone in order to stay transparent to the public in regards to its current and near future plan actions. This is a way to provide faith to the general public that the FED has all its intention to keep the real economy steady and minimize any and all headwinds.
Jackson Hole is the even where current FED chairman Powell will be disclosing his thoughts on current economy and how he and his members of the FOMC plan to do to curb inflation. As of now though there is a lot of signs that the FED is leaning hawkish which means they prefer to raise borrowing interest rates and increase Quantitative Tightening to curb inflation. Reference Story.
Members of the FOMC will also come out stating their own opinions. Note all these comments were mentioned within the past 24 - 48 hours.
Richmond Fed President Barkin
very seriously committed to returning inflation to our 2% target, and we’ll do what it takes to get there.
Minneapolis Fed President Kashikari
As we continue to raise interest rates, the economy will be slowed, making a recession more likely.
Kansas Fed President George
Financial conditions may have eased due to expectations that the fed would slow down, but this does not represent how the fed is thinking about policy.
St. Louis Fed President Bullard
Inflation is too high and it is too soon to declare that the inflationary rise has peaked.
San Fransisco Fed President Daly
Some cooling of the labor market would be welcome.
Not all comments from the FED are hawkish but I selected the comments they did convey to be hawkish because current stock markets thinks otherwise. The past few weeks the stock indexes have rallied over 10% off its June lows.
For today the stock markets fell with more hawkish comments from the FED. This is key as to understanding the FED can potentially move the markets and jawboning is one of those ways. If they truly will execute what they say remains to be seen but hopefully you can take away from this post that the FED can definitely move the markets just by words.
None of what I write is financial advice. It is for entertainment purposes only. Thanks for reading!
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