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CEO and Co-Founder Ivan Zhang tackles the top market observations for the week. Follow us on Twitter and Instagram to stay up to date in real time.
The theme this week is that of reversals. The Jackson Hole speech by Powell is a masterclass of setting proper expectations. The tough rhetoric against inflation is a necessary component of combating inflation, which is largely driven by consumer expectations in the first place. The hope is that such language would be just as effective at staunching the flames of inflation as hiking rates. But maybe it has gone too far? What have we learned this week?
Lower than forecast indicators include PMI, home sales, durable goods, and PCE inflation. While the readings show a slowdown in the economy, many other indicators are still healthy. Amongst them is the GDI (Gross Domestic Income), which has tended to be negative going into recessions. Currently, it’s roughly flat to slightly positive, which means there might still be a chance that we get out of this in a “soft landing”. As long as the Fed doesn’t kill the economy with aggressive hikes… oh wait…
The Fed is taking a hawkish note and saying they may have to make unusually big hikes to ensure inflation will reach their targets and that consumers may have to take some pain. The first time I recall, this was spelled out explicitly, and the market took it very negatively. Equity indices are down for the first time in a few weeks, and crypto has also dropped precipitously following the news.
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