Today Fed Chair Powell gave his annual speech at the Jackson Hole symposium for central bankers. The Chair kept largely to expectations by cautioning that the Fed could still increase rates if inflation measures don’t hit targets.
The Fed’s Federal Open Markets Committee (FOMC) doesn’t meet until September 19/20. August CPI data is scheduled for release on September 13, which should give the Committee the opportunity to consider the most recent inflation data in their decision-making process.
In my view, the Chair carefully walked a middle-of-the-road path, often using the word “could” with respect to increasing rates and acknowledging that raising rates too high could cause harm. Clearly, while there appears to be a growing consensus that the Fed will pause in September, under the headline of being data-driven all options remain on the table.
Republican Debate
The political world was focused this week both on the first debate of Republican Presidential candidates and the formal arrest of former President Trump in Georgia.
None of the eight candidates had a breakthrough moment, either positive or negative. The fact that President Trump was missing probably gave more airtime to the candidates who participated, but the former President grabbed the headlines the following day with his formal arrest and booking in Atlanta. It will be a challenge for the Not Trump candidates to break through given the fact that the former President dominates both the polls and the news cycles.
Budget
Congress remains on recess, but policy makers and staff continue to work in DC on plans for budget action once the Congress returns.
The deadline for action is October 1 when the current funding bills expire. The US government runs on a cash budget, and spending authority expires at the end of the current fiscal year.
Conservative House Republicans let their leadership know that they have some basic spending demands that will be necessary for them to support any continuing resolution (CR) that will be needed to avoid a government shutdown on October 1. These Republicans have been demanding that total government spending be reduced to the spending levels of FY 2022. A continuing resolution by definition continues spending at current year FY 2023 levels. In addition to spending levels, these Republicans want money for the Southern border, limits on the Justice Department investigations, and curbing the “blank check” for Ukraine spending.
The Republican majority in the House is razor-thin, with only a five-seat majority. The large block of Freedom Caucus Republicans can clearly block any CR from passing, making the road forward to Speaker McCarthy very challenging.