Geopolitics and Markets Review - 28th August 2023

Thoughts on Jackson Hole, the BRICS Summit, and the New Space Race.

I was going to write a deeper piece on the Jackson Hole Symposium today, but based on the week we had, I need to write a little on a lot of different topics.

I wanted to write additionally about the Camp David Pact and Prigozhin’s death, but it’s been a busy few days so I won’t get everything done I wanted to. Just one of those weeks where I had more I wanted to get done with too little time, so apologies in advance. Also, it was a rush to get this piece out. If you have anything you want me to clarify or data you seek to support the points made in this piece, let me know!

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Jackson Hole Takeaways

Anytime Powell performs his carefully constructed speeches, it’s natural that central bankers, economists, and countless others interested in the financial markets tune in. There are few speeches as big as the Jackson Hole speech.

This year’s speech was named “Inflation: Process and the Path Ahead.” Within three sentences of the beginning, Powell mentions the 2% target. Some predict inflation targets will be raised as 2% won’t be achieved due to inflation remaining sticky. Powell is ignoring headline inflation which includes food and energy due to global factors such as the Ukraine war.

In Core Inflation, we have housing, transport, healthcare, and electronics.

Photo by Rodrigo Abreu on Unsplash

Services inflation is the aspect of the US economy that is being stated as being stickier. It was put excellently by Adam Taggart of Wealthion using the Pareto Principle. We’ve tackled the easy 80% of the inflation task in the US, but the final 20% could be more difficult.

Has demand been crushed in all aspects of core inflation such that prices can fall further? Free COVID handouts of money ensure that inflation can’t drop until this leaves the system and the helicopter money is also being debated as the reason we haven’t yet seen a recession.

But demand is dropping. The 30-year mortgage rate of 7.53% is crushing housing market demand. Powell also stated he expects to see rents drop soon due to turnover in leases. He expects once this occurs that housing services inflation should fall in line with pre-pandemic levels.

Non-housing services include health care, food services, and transportation. The supply shock style inflation we’ve experienced affected these areas of services less. The strong labour market has also not reduced productivity in these areas. Labour market weakness would need to be seen here to reduce inflationary pressures.