Auour Investments: Nobu's Notes | ETF Trends

Jackson Hole

The annual conference of central bankers has kicked off in Jackson Hole, WY and we want to address the opening statements made by Fed Chair Jerome Powell. We typically do not want to inundate readers with minute-by-minute commentary. However, the Federal Reserve is the driver of much of the market at this time as the world fights inflation and the hangover produced from years, if not decades, of easy money. We rely on Nobu for his view of the speech.

Now on to his thoughts…

My usual two cents on Fed’s Powell speech.

  • “Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance. Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions.”
  • “While the lower inflation readings for July are welcome, a single month’s improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down.”
  • “Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.
  • “One useful insight into how actual inflation may affect expectations about its future path is based in the concept of “rational inattention.” When inflation is persistently high, households and businesses must pay close attention and incorporate inflation into their economic decisions. …which highlights a particular risk today: The longer the current bout of high inflation continues,the greater the chance that expectations of higher inflation will become entrenched.

So much so for the early pivot theory… Though it does not come as a total surprise, the whole speech reads like the Fed’s official mea culpa w/o a “sorry” IMHO. The Fed seems to have finally embraced the 1970/80s playbook. Powell is essentially saying that the Fed needs not only a series of well-behaved CPI prints, but also signs of sustained weakening of the job/wage data to consider a “pivot”. Given his track record so far, there is always a risk that his messaging starts to change once again, should the financial market get seriously more wobbly. But for now “…sorry (and recession) seems to be the hardest word…” as in one of the old jazz tunes.


Nobuya Nemoto has a background in macroeconomic and quantitative research. Nobuya was one of the founding partners of Washington-based Potomac River Capital LLC (“PRC”; a macro hedge fund) as the Head of Strategy and Quantitative Research, and helped the fund grow its AUM twentyfold over the course of 10+ years. Prior to PRC, Nobuya was a Managing Director at Citigroup Asset Management (“CAM”) heading its Capital Market Research in charge of developing CAM’s global asset allocation platform and served as a senior member of the Asset Management Committee that produced key asset allocation decisions for firm-wide balanced products. Before joining Citigroup, Nobuya was the Chief Japan Economist at Nomura Securities, ranked multiple times as one of the top three research teams by Institutional Investor Magazine. He has a BA in International Economics from the University of Tokyo and pursued doctoral studies in economics at Columbia University under Nomura’s sponsorship. Nobuya resides in London, UK with his wife and two cats.

Best regards,
The Auour Investments Team


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