Stocks dropped suddenly after Federal Reserve Chair Jerome Powell struck a hawkish tone in a speech at a Jackson Hole economic symposium, and reiterated the central bank’s primary focus was to fight inflation.
The Nasdaq led the plunge, dropping 3.94% as the S&P 500 dropped roughly 3.37%. The Dow lost 1,008.38 points, or 3.03%.
Powell said in his remarks, “Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.”
Ian Shepherdson at Pantheon Macro said of the remarks, “In one line: Nothing for doves. Chair Powell’s speech forcefully reiterated the Fed’s intention to tighten policy enough to bring inflation down to target and then keep it here.”
Federal Reserve officials have indicated future policy decisions would be guided by economic data, and determined on a meeting by meeting basis. So far most of the data coming out has supported the continued presence of inflationary forces and the likelihood of continued rate hikes.
Friday data from the Bureau of Economic Analysis indicated consumer prices fell by a small amount last month. The headline Purchasers Consumption Index, fell 0.1% between June and July as a 4.8% drop in energy prices drove the index down. PCE was sill up 6.3% on a year over year basis in July.
The Fed’s preferred measure of inflation, Core PCE, rose 0.1% month on month for July. It was up 4.6% from the previous year, which was the lowest annual increase going back to October of 2021. Expectation had been for core PCE to rise 4.7% over the same month a year prior.
Federal Reserve Bank of Kansas City President Esther George said that, “We are trying to get back to 2% inflation as quickly as we can, without doing damage to the economy.” However she also said there is more work to do, and the sharpest impacts from the bank’s moves have not yet been felt.
She added, “So July looked like there was some easing in those price pressures, but certainly not enough that you would say, we’re in the right direction. So I think we have more data to see. And I think we have more work to do, to begin to see that trend move down.”
