040: Federal Reserve Symposium Insights with Megan Horneman 08-25-23

Our Chief Investment Officer, Megan Horneman, breaks down the implications of the recent Federal Reserve symposium in Jackson Hole, Wyoming. Megan dissects the Fed's cautious stance on raising rates, their unyielding commitment to the 2% inflation target, and the market's positive response to these comments. Gain insights on the potential scenarios for future rate hikes and the effect of the recent rise in energy prices on inflation.

She unpacks the challenging fundamentals of the US and global economies which could lead to increased market volatility. We discuss the significance of the consumer sentiment survey from the University of Michigan and its indications of rising inflation expectations among consumers. Find out how these consumer expectations could drive inflation and learn about the possibility of the Fed maintaining the status quo at the next meeting in September. To top it all off, Megan shares her predictions on when we might see another rate hike. Don't miss out, tune in to this episode of Markets with Megan! 

Hello, I'm Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors. Today, in our segment of Markets with Megan, we're going to talk about the Federal Reserve and the comments they made today at their annual symposium in Jackson Hole, Wyoming. The markets have been waiting for this meeting all week and the Fed really didn't make any big surprises with their comments. They did make mention that they're prepared to raise rates further if it's necessary, that there's still a long way to go from their inflation target and they did not budge on the 2% inflation target. They also mentioned that their upcoming meetings they would proceed cautiously so that basically an our opinion means that they will assess each meeting with the data that they have and doesn't necessarily mean that they'll continue to raise at every meeting. The markets liked it. Today the bond markets are basically unchanged, but the equity markets are rallying because it's very different than the comments they made last year. Last year they were very hawkish. They even mentioned that they would have to take forceful and rapid steps to quality inflation. This year it's a little bit more balanced.

We think, going forward, that the Fed will still probably have one more rate hike this year. We think that in the near term there is risk that inflation could temporarily rise again because we've seen the uptick in energy prices, but then we do think that they're going to stay higher for longer. That's something that the market has to adjust to. We still think there's a lot of room for volatility because fundamentals are still very challenged here in the US and globally. Then the last thing we'll mention is from the inflation side.

The Fed needs to pay attention to is today we got the University of Michigan consumer sentiment survey as well, and we did see that inflation expectations for consumers in the near term and also the longer term ticked up. That's something the Fed's going to pay attention to, because once consumers start thinking there's inflation ahead that can actually feed on its inflation itself as they do, they'll spend more now in the anticipation that prices may rise. So we'll keep an eye on this. We think that the Fed probably will stay on hold at the next meeting in September. It will be data dependent, but then we do still do think there's another rate hike, maybe in November or December. That's all we have today. If you have any questions or comments, please feel free to reach out to podcasts at verdence dot com. Thank you.