🤸 Alright then—yesterday Nvidia gave tech companies a little breathing room, and today Wersch decided to remind investors that life shouldn’t be too easy.

😮 Today, the head of the Fed, Kevin Wersch, delivered his first speech at Jackson Hole in his new role, and the market received a fairly clear signal: it’s still too early to talk about winning the fight against inflation.

😑 And here’s the important context. The PCE inflation that the Fed focuses on is currently 3.7% y/y, and over the last six months the pace is even around 4.1%. And while this summer’s CPI and PCE turned out better than expected, as Warsh said, that’s not enough to talk about a meaningful improvement in the underlying inflation trend.

🧻 Moreover, 54% of goods and services in the PCE basket are still getting more expensive by more than 3% y/y. Before the pandemic, there were only about 32% on average. In other words, the problem isn’t just oil or a few specific categories—inflation pressure remains fairly broad.

😬 And then came what is probably the most important part for the market. The Fed’s 2% goal remains “solid and fixed,” and the key priority right now should be prices. If the Fed isn’t confident that inflation is moving toward that target fast enough, as Warsh said, “we still have work to do” and “the Fed will have work that needs to be done.”

☝️One more point that I think is even more important: Warsh said it’s difficult for him to describe today’s financial conditions as restrictive. Lending is working, consumption remains strong, investment is growing, and he effectively views the labor market as full employment. So the economy doesn’t yet look like the current rate is strongly “choking” it.

That’s exactly what the tech sector didn’t really like. For expensive growth companies, the outlook of “higher for longer,” and especially the possibility of another rate hike, means a higher discount rate for future earnings.

😐 That said, I wouldn’t blame all of today’s tech selloff solely on Warsh. After yesterday’s strong rally following Nvidia’s earnings report, some of the market was already moving into profit-taking. But the Fed chair’s speech definitely didn’t improve the picture.

🤷‍♂️ At the same time, Warsh didn’t announce a rate increase and didn’t even promise that one would happen. That matters. He continues his new policy without clear “forward guidance”: we look at the data and make decisions.
So after the Nvidia AI cycle, nothing has gone anywhere—corporate earnings remain strong—but the Fed reminded the market today of the other side of the equation: expensive money can stay with us longer than investors would like.

Wishing everyone a great end to the week, and for Kyiv residents—don’t let your heads get blown off by the sheer number of air-raid alerts 😒

Mykyta Huppal | ProInvestments

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