The week started positively with the stock market continuing its rally despite retailers warning of slowdown, semiconductor companies cautioning on outlook and housing market cracking as expected. But, the resilience of the stock market rally was broken by comments from St. Louis Federal Reserve President James Bullard who indicated that the Fed likely would continue hiking rates in the near term, dampening investor hopes for a less aggressive stance. For the week, the S&P 500 fell 1.2% and the Dow Jones average ticked 0.2% lower while the Nasdaq Composite slid 2.6%.

The polarizing comments by Bullard puts the Fed’s meeting next week at Jackson Hole squarely in focus. One wonders why do members of the Fed make random statements that add unnecessary volatility and randomness into the market when the Fed Chair – Jay Powell has repeatedly stated publicly that the Fed’s decision will be data dependent?

Future Wealth’s View

As much as the stock market wants to move beyond the Fed’s moves, any hint of going overboard with interest rates and dipping the country into a recession is worrisome. In addition to unwanted comments by Bullard, another loose mouthed member of the Fed is Neel Kashkari. He put further uncertainty into the market on Friday by stating that “There is a disconnect between me and the markets”.

The bluntness of remarks by members of the Fed these days has harkened us back to the days of the Greenspan led Fed where comments by members of the Fed were so esoteric and required some hard analysis and between the lines reading by traders and investors alike on Wall Street. 

And so, we are left with three different scenarios for the September Fed meeting. If the inflation reading (CPI) in August drops to 7.8% or below from July reading of 8.5%, there is no compelling reason for the Fed to hike rates beyond 50 bps and Wall Street will celebrate and the bull market will be officially opened. If the reading is above 8.5%, Bullard and Kashkari will be proven right and the recent rally will be marked as a bear market rally that petered out. If the reading is between 7.8% to 8.5%, hold your breath. Anything can happen.