Economic Indicators and the Upcoming Jackson Hole Speech
The Federal Reserve is set to make a significant announcement, and investors are eagerly awaiting the speech by Powell at Jackson Hole. As we wait for this speech, let’s examine what some of the nowcast indicators are showing for growth and inflation.
Growth Indicators
The Atlanta Fed’s GDPNow tracker is currently at 2.3% for Q3, indicating a moderate growth rate. This suggests that the economy is still expanding, albeit at a slower pace than in previous quarters.
Inflation Indicators
In terms of inflation, the Cleveland Fed’s CPI nowcast is tracking at 3.05% for Core CPI YY, while Core PCE is sitting at 2.96%, which can be rounded to 3.0%. These numbers indicate that inflation is still present in the economy, but it is not excessively high.
Labour Market Data
Some analysts argue that the labour market is a cause for concern, citing ugly revisions in recent data. However, other timely indicators, such as the 1Y change in claims data, are not showing signs of stress. In fact, this data point is currently sitting at 3.1%, which is well below the 20-30% threshold that typically suggests a recession is on the way.
The Case Against Aggressive Cuts
Given the current state of the economy, it is challenging to make a strong case for aggressive cuts by the Fed. With growth above 2.0% and core inflation at or just above 3.0%, it is difficult to argue that the economy needs a significant boost. Furthermore, the labour market data is mixed, with some indicators showing stress, but others, such as the unemployment rate, still looking fine.
Conclusion
In conclusion, the current aggregate of economic data makes it difficult to argue for aggressive cuts from the Fed. The US economy is still growing, and inflation is present, but not excessively high. While some labour market data is concerning, other indicators suggest that the economy is still on a stable footing. As such, it is unlikely that the Fed will implement large-scale cuts, and investors should be prepared for a more moderate approach to monetary policy. The idea that the US has the "best economy in the world" and yet requires 200 basis points of cuts does not add up, and the Fed is likely to take a more nuanced view of the economy in their upcoming announcement.
