It is common practice in investment management to warn against interpreting too much from one month’s financial market and economic developments. Justifiably so, because investors should be adopting a multi-year mindset to avoid falling victim to the fear and greed investment cycle that can prove so costly when investing for the long term.
In his speech after the Jackson Hole central bank symposium, Powell spelled out the Fed’s stance: “We have much experience in addressing typical macroeconomic developments. But fitting trade policy uncertainty into this framework is a new challenge. Setting trade policy is the business of Congress and the Administration, not that of the Fed.”
Mounting private sector concerns about the growing budget deficit prompted debate about whether the government was heading towards a debt trap and whether it would need to seek IMF debt relief. But the consensus is that, although fiscal trends are currently unsustainable, we are not quite there yet. The dollar-denominated MSCI Emerging Markets Index slumped 4.9% compared with the milder, but still negative, 2% decline in the MSCI World Index. Conditions are not likely to get easier for emerging markets in September as contagion risks arose at the start of September when Argentina implemented capital controls to halt the multibillion-dollar daily outflows it was experiencing into month-end.