Investors looking for signs of a ‘Fed pivot’ were left disappointed following Chair Powell’s speech at the annual Jackson Hole symposium last week. Hopes that the pace of monetary policy tightening would be slowed or even paused were dashed as he held firm and reiterated his “unconditional” commitment to bring down inflation.
Stocks sold off in reaction to the speech, with cyclical areas of the market most affected. Historically a central banker’s bark can be worse than their bite so it remains to be seen if interest rates in the US will be raised from the current 2.25% – 2.5% range to the anticipated 4% level in the first half of next year.
Whilst bookmakers see Liz Truss as the odds on favourite to become the next UK prime minister, we will find out the official result on Monday. Tackling the cost of living will be at the top of the agenda. This is no easy task, with the help required growing by the day, and the need for policies to be targeted at the people really in genuine need.
The Bank of England will worry that if support is too generously applied across the whole UK, it could provide a fan to the flames of inflation and actually inflict long term pain in the areas of society most in need. Against this backdrop of political and economic uncertainty, sterling has registered its biggest monthly decline against the dollar since the Brexit referendum in 2016.
John Naylor, Chartered FCSI – Head of Investment Committee