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At last week’s virtual Jackson Hole event, Federal Reserve (Fed) Chairman Powell announced a significant change in how the Fed will operate going forward. The update in how the Fed looks at its dual mandate of managing inflation and employment had been widely expected, but the formal announcement could have a profound impact on monetary policy and market expectations going forward. Allowing inflation to run above its target for a period of time to bring the average inflation rate in line has the potential to change long-term expectations. The impact in the short term was to push risk markets higher and send bond prices lower. The risk for bond prices over the coming months continues to increase, especially at the long end of the yield curve, due to this change in policy and the supply of Treasury bonds to fund the growing deficit.
This week should be relatively slow as we approach the Labor Day holiday. The highlight of the week will be the Friday release of the U.S. employment report, which is expected to show an increase of 1.4 million jobs for August and the unemployment rate falling back below 10%.
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