For the last few months, the Trump Administration and its supporters within the FOMC have relentlessly argued that the absence of tariff-induced inflation shows that the Fed is behind the curve. Together with a stagnant labour market, this has created a narrative that has drowned out opposing views and driven frenzied rate cut speculation. However, while we acknowledge US economic fragility, several Fed officials seem to share our unwillingness to fully embrace this singular focus on one side of the mandate, despite what's priced into the curve. Yes, perceptions of how the labour market is doing have shifted dramatically after last month's weak NFP, but reduced labour supply is also an important consideration. The good news is that with the topic of the Jackson Hole gathering, "Labor Markets in Transition", investors will soon get a much clearer understanding of Fed thinking on this issue. More importantly, Powell has the opportunity to make a "last stand" against the President, not far from Little Bighorn. Will he take it?
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