Megan Horneman on Inflation Volatility, Fed Policy, and Economic Outlook

Jackson Hole Symposium and Fed Policy Outlook

• 🎤 Megan Horneman, CIO of Verdence Capital Advisors, discusses the upcoming Jackson Hole Economic Symposium and expectations for Jay Powell's speech.
• 💡 She anticipates Powell will emphasize data dependency and the continued presence of inflationary pressures, while acknowledging labor market weakening.
• ⚠️ Horneman believes Powell will temper expectations regarding rate cuts in September, despite market pricing for such an event.

Inflationary Pressures and Tariffs

• 📈 Horneman expresses skepticism about the recent optimism surrounding inflation data, suggesting the details are not as positive as perceived.
• ✈️ She highlights that new negotiating tariffs implemented in August have not yet fully impacted inflation data, with effects likely to appear in Q4.
• 🧩 The impact of these tariffs, particularly higher ones than the baseline, could lead to significant volatility in inflation over the next six to nine months.

Fed's Dual Mandate: Inflation vs. Employment

• ⚖️ Horneman believes the Fed should be more concerned about inflation but will likely focus on the employment picture due to observed cracks in the labor market.
• 🏠 She points out that sticky inflation areas like services and housing are outside the Fed's direct control, posing a challenge.
• 🎯 The Fed's focus at the September meeting might be on factors furthest from their mandate, with inflation risks being higher.

Economic Volatility and Rate Path

• 📉 Horneman predicts a volatile period for inflation over the next six to nine months due to unfinalized trade deals and the delayed impact of tariffs.
• 🔄 She cautions against aggressive rate cuts, suggesting it could reignite inflation in a vicious circle.
• 📊 The true inflation picture in the fourth quarter is expected to be volatile, influenced by the timing and magnitude of tariff impacts.