Markets Gear Up for Dreaded September

📊 Food For Thought

Upon reflection of the Jackson Hole speech, Jerome Powell spent 8 minutes reiterating the core stance that the Fed is determined on fighting inflation at the expense of investors. Powell does not want to be remembered as the modern-day Arthur Burns. Even though the FOMC has telegraphed this message plenty of times at previous meetings, the market reacted violently to this speech, seemingly caught off guard by the hawkish comments made by Powell. So how should we think through the short to medium-term implications of this?

• If the market was indeed caught off guard by the FOMC, we’re likely to see ripple effects in the market over the next several weeks. If price action is any indication, the recent bear market rally was at least fueled in part by market participants trying to front-run the Fed pivot. If we are to believe Powell’s most recent comments, the timeline for that pivot has certainly been pushed out to some degree.
• Market participants who have been leaning towards an early Fed pivot (potentially as early as the September FOMC meeting) are likely wrong and at least partially mispositioned within markets. They might even be wrong on the December pivot timeline as well, adding further stress to any positions taken.
• And if history is any indication we may be in for a tough month. Markets are heading into September which has generally unfolded so poorly for crypto and risk assets that it has become a meme.

• The reaction to the Jackson Hole comments was reminiscent of the reaction markets had in early June to the much hotter than expected CPI print. At the time, it appeared as though everyone (Powell included) had taken the stance that inflation might be peaking. When the reality of higher-than