Awaiting Fed Chair Yellen at Jackson Hole. Since the committee met in July 2016, another strong employment report has been received and the Q2 GDP numbers, although soft at the headline level, contained very solid readings on private consumption. We believe this will be sufficient for Chair Janet Yellen to give a more constructive assessment of labor markets and economic momentum in Jackson Hole on August 26.
If the August employment report, scheduled for release on September 2 (after the Economic Policy Symposium at Jackson Hole), is solid, then we expect the Fed to raise rates at its September meeting. That said, the concerns in some corners of the committee about the inflation outlook may support a shift in the reaction function away from observed labor market progress toward actual progress on inflation. Should this policy shift take place, then the next rate increase is likely to be deferred to December, if not further into 2017.
