by Lance Roberts
Real Investment Advice
Another week grinds with market action remaining muted as the “dogs days of summer” finally come to a close. But it is next week, as global Central Bankers converge on Jackson Hole, Wyoming, which may give the market some direction before the final push into the November elections.
“Fed Chair Yellen is scheduled to talk on Friday, the 26th (the timing of her speech has not yet been released). She is likely to spend time discussing the latest star at the Fed – R*, which is the equilibrium Fed funds rate. The short-term R*, which represents the equilibrium rate impacted by current headwinds, is believed to be about 0% in real terms. With the real Fed Funds rate running below, Yellen will likely argue that policy is still accommodative. We expect Yellen to reiterate the desire to keep policy stimulative, given a ‘risk-management’ approach. There is asymmetry to policy when so close to the zero bound – hiking too quickly could derail the economy, but going slowly will simply mean a risk of having to play catchup. In this context, Yellen might argue that conditions are increasingly being met to further normalize rates before the end of the year, consistent with the latest communication from the FOMC. However, we do not expect guidance on the exact timing of the next hike.”