3 Things You Need to Know This Week | Jackson Hole, US Inflation, Q2 US GDP

Transcript

Scott O’Leary:

Hello, and welcome to 3 Things You Need to Know This Week. This is our regular series designed to help you cut through the financial headlines and focus on what really matters for markets. For more market insights, subscribe to our YouTube channel or visit fisherinvestments.com. And with that, here are three things you need to know this week.

First up, the Jackson Hole Economic Symposium.

This Thursday, central bankers, economists and policy makers from around the world will gather in Jackson Hole, Wyoming, for the Federal Reserve Bank of Kansas City's annual economic symposium. Fed Chair Kevin Warsh is expected to speak on Friday, and as usual, investors will likely scrutinize every word for clues about what the Fed will do next. Jackson Hole has built a reputation over the years because a handful of speeches there have preceded meaningful policy shifts— and that history is why pundits often portray it as one of the most important central bank events of the year. However, we think it's important not to overstate what it can tell us. For starters, Chair Warsh has already signaled that he may prefer less of the Fed's traditional public guidance. In June, he chose not to submit an individual interest rate projection for the Fed's latest dot plot, which is a collection of policymakers' projections for where interest rates may go. And all of that really makes a lot of sense to us. Monetary policy depends on economic conditions that have yet to unfold. Future data will change, and policymakers' interpretations of it can change, too. Federal Open Market Committee members, including the Fed Chair, can—and often do—alter their views as circumstances evolve. So, Jackson Hole will generate headlines. But Fed talk is not a roadmap, and projections are not promises. For long-term investors, we believe it's important to watch what central banks actually do, not what they say.

Next, US PCE inflation.

On Wednesday, the US Bureau of Economic Analysis will release July's reading of the Personal Consumption Expenditures Price Index, or PCE. There are two figures investors are likely to focus on. First, headline PCE, which captures all consumer spending categories. Second, core PCE, which strips out volatile food and energy prices. Now, the report follows other encouraging inflation data. July's Consumer Price Index showed headline inflation rising 3.4% year-over-year, which is down from 4.2% in May. Core inflation also eased, falling from 2.9% in May to 2.5% in July. That suggests inflation's recent moderation was not limited to energy-driven headline swings. Now, Wednesday's release will likely draw plenty of attention from investors looking for clues about where monetary policy may head next. But the real question is whether inflation is becoming broad, persistent and materially worse than investors expect— or whether the feared resurgence continues to fall short of the hype. As always, watch for surprise, not just the number.

And last, estimated US Q2 GDP.

Also on Wednesday, the U.S. Bureau of Economic Analysis will release its revised estimate of second-quarter GDP. The initial reading showed the economy growing at a 1.5% annualized rate, with consumer spending contributing positively even as overall growth moderated from the prior quarter. The second estimate incorporates more complete data, which means the headline growth rate could be revised as economists get a clearer picture of business investment, trade and consumer activity. Before placing too much weight on that revision, it's worth remembering that GDP measures how the economy performed last quarter. It's backward-looking. Stocks, by contrast, are forward-looking. They focus on what businesses, consumers and the broader economy are likely to do over the next several coming quarters. That distinction matters because revisions often generate headlines without offering new insights into where the market is headed. Whether Q2 growth is nudged slightly higher, slightly lower or stays right where it is, investors have already had months to assess the economic environment that produced those results. So, Wednesday's report is best viewed as a checkup on where the economy has been, but not a diagnosis for where markets go next.

And that's it for this episode of 3 Things You Need to Know This Week.

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