Fed Powell’s ambivalent stance leaves investors with a cloud of uncertainty. Why the U.S. stock market faces a difficult week ahead.

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Next week, the Fed’s preferred measure of inflation and the latest employment report will offer the next trial for the U.S. stock market as investors assess...

The U.S. stock market recovered from a three-week losing streak this week, though release of Nvidia’s earnings and a speech by Federal Reserve Chair Jerome Powell at the Jackson Hole Economic Symposium provided some volatility, but the artificial intelligence boom offset rising bond yields.

“Powell needs these ‘data clouds’ to give him a sign so that they know if the work is done, and I don’t believe that he will know that between now and September,” Grahn said. “There’s a dearth of corporate news that’s really going to move the markets, which means traders and investors are going to focus their attention on the macro components,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial.

Annual U.S. inflation in July is forecast to creep back up to 3.3% year-over-year from 3% in the prior month, while consumer prices are expected to rise another mild 0.2% for the month. The so-called “core” PCE is also expected to tick up slightly to 4.2% from 4.1% in June, according to Wall Street analysts polled by Dow Jones. The core rate omits volatile food and energy costs and is viewed by the Fed as a better predictor of future inflation trends.

However, the assessment of the precise level of monetary policy restraint is complicated by uncertainty about the duration of the lags with which monetary tightening affects economic activity and inflation, Powell said on Friday, noting “the wide range of estimates” of these lags suggests that there may be “significant further drag” in the pipeline.

However, recent strong economic data has raised concern that the Fed will keep its benchmark lending rates higher for longer than anticipated, which triggered a jump in longer-dated Treasury yields.

 

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