- Lessons from Yellowstone. Though last month's Annual Economic Symposium in Jackson Hole focused on the theme of "Inflation Dynamics and Monetary Policy," for investors a more relevant topic might draw its inspiration a few miles north in Yellowstone and lessons from the 1988 fires. Years of fire suppression policies may have contributed to the size of the fires. Fear of financial market conditions tightening (fire) and the avoidance of any actions which might contribute to that occurrence appears prevalent in many Fed officials' viewpoints. Whether such policies ultimately contribute to even larger "fires" remains to be seen.
- Expectations for the September FOMC. While U.S. economic data clearly have argued in our assessment for a long justified increase in the funds rate, any signs of disappointing U.S. data or financial market instability would likely postpone liftoff. Note that this would not mean until December, but rather would put October firmly in play as the Fed has been clear to indicate that a policy change can occur at any meeting and an unscheduled press conference could be used to help communicate the policy change.
- The Accumulated Fuel in Emerging Markets. Global growth matters to the outlook. But the larger significance for investors lies in the financial linkages the potential for collapsing Chinese growth could reveal. As in all crises, such linkages are never so clear ahead of time and only reveal themselves, and the extent of their significance, afterwards. What is clear and has been clear for some time is the most obvious source of financial stress appears in the rise in private sector emerging markets credit.