Today's Scoop:

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Here’s what you need to know today…

1. Policymakers think inflation is coming under control.

2. Consumers are feeling OK but worry about rising living costs.

3. Business activity slowed in August.

S&P 500: 4,433.31
1Mo: -3% | 1Yr: +10% | 5Yr: +53%

The market bounced from the downward spiral of the past month after a speech from the Federal Reserve Chairman on Friday expressed confidence that inflation is coming under control.

Policymakers aren’t hinting at raising interest rates further. Fed Chair Powell on Friday reassured investors that living costs aren’t rising as quickly anymore, particularly considering rent and home costs will soon bring inflation down more. He thinks the recent interest rate increases, the most aggressive monetary policy of the last several decades, have inflation on the right track, but they’re prepared to act if that changes.[🤓]

Americans are feeling OK but they’re worried about rising living costs. The University of Michigan’s Consumer Sentiment Index fell in August but remained near the highest level since December 2021. Consumers loved the recent inflation cooldown but still expect living costs to increase by 3.5% over the next year, averaging 3% increases every year for the next five years. Normally, prices rise 1-2% per year, but everything has been out of wack since the pandemic.

Business activity slowed in August. The Dallas Federal Reserve’s Manufacturing Survey reported a decline in factory activity, fewer new orders, less optimism about future business conditions, and higher supply costs. Earlier surveys from the New York region shared many of the same sentiments, but things picked up around Philadelphia this month.

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How the Federal Reserve manages inflation

The Federal Reserve, aka the Central Bank, aka The Fed, is in charge of our whole money system. When the economy is struggling, the Fed lowers baseline interest rates to make it cheaper for consumers and businesses to borrow and spend (lower rates on business loans, mortgages, credit cards, car leases, etc.)

The Fed also pumps more money into the system by buying bonds with new dollars that it essentially speaks into existence. The additional cash keeps the pipes flowing as the borrowing and spending heats up, stimulating economic activity.

Once the economy's strong enough to stand on its own, the Fed starts to raise interest rates and pull back some of that money to ensure the economy doesn't overheat. Inflation is the Fed's heat gauge. The gauge was reading very hot but has been cooling lately.

So everyone's watching how long the Fed will keep restricting the economy with high rates if inflation keeps cooling. The Fed hopes to get living costs under control without sparking mass unemployment.

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