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Jerome Powell resets expectations.

When Federal Reserve Chairman Jerome Powell spoke at the annual Jackson Hole Symposium, he let the world know that inflation is the Fed’s number one concern. He went so far as to explicitly state that the remedy to address inflation will lead to “some pain to households and businesses.” The comments did not sit well with investors as they recalibrated their expectations regarding the number, and magnitude, of future interest rates hikes. The equity markets sold off hard on the speech.

Earnings season.

Q2 earnings have come in remarkably resilient considering the perceived headwinds with inflation and supply chains. These results do seem to be industry specific, as retail companies struggle with inventory management and energy companies book record profits. Continued resiliency is going to be needed moving forward as rates move higher and the Federal Reserve commits to slowing inflation. 

Consumers and businesses. 

Up to this point, both consumers and businesses have weathered the increased inflation and interest rates relatively well. Unemployment remains historically low. Consumers and businesses are continuing to spend and invest in their futures. There will undoubtedly be slowing in the economy with rising interest rates, with questions swirling about whether the tightening will lead to a slowdown or a recession. This topic will remain persistent for many quarters to come.