The Federal Reserve Has Lost Control

In a succinct statement on Friday, Jerome Powell expressed concern that the Federal Reserve's efforts to reduce inflation would have "unfortunate effects" that would impair the job market, sluggish growth, and hurt both firms and individuals.

The highly anticipated speech by the Fed chairman at a conference on economics in Jackson Hole, Wyoming, lasted less than ten minutes and was laser-focused on the message that the Fed would keep raising interest rates and holding them at a high level despite anticipating that this policy would be difficult on American families and businesses.

The speech did not include the idea that inflation might be reduced smoothly, which is a departure from earlier statements that suggested Fed members still thought a "soft-landing" was possible.

“We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2 percent,” Powell said. “Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy”.

The takeaway is that high interest rates won't stay as long as some people think. Recent market activity suggests that some investors anticipate the Fed will change course and decrease rates next year. Powell's speech seems to be an attempt to defy that anticipation. - Breitbart

A Global Recession?

The services side of the S&P Global Purchasing Managers Index (PMI) fell into a steep contraction in July as consumers cut back on discretionary spending due to high inflation squeezing household budgets. Economists were expecting a bounce in August after weeks of falling gasoline prices. Instead, the services side sunk even deeper into contraction, and the manufacturing side slipped closer toward contraction.

The composite index, which combines manufacturing and services, is at its lowest point in 27 months. The rate of contraction was faster than anything else seen since the first pandemic outbreak over 13 years ago, according to S&P Global. In other words, despite the fact that firms hired more than 500,000 new employees to their payrolls in July, it appears that the economy is contracting quickly. Production has returned to the May 2020 levels it was before the pandemic halted a large portion of the economy.

“Cost of living pressures mean that the recovery in the service sector following the lifting of pandemic restrictions has ebbed away, while manufacturing remained mired in contraction in August, seeing another record accumulation of stocks of finished goods as firms were unable to shift products in a falling demand environment. This glut of inventories suggests little prospect of an improvement in manufacturing production any time soon,” said S&P Global’s Andrew Harker. - Breitbart

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