Federal Reserve Chair Jerome Powell is a good golfer, and if (as I thought going in) the goal of his speech at the Jackson Hole Symposium was to strike the ball down the middle of the fairway, then he achieved it – with perhaps a gentle draw in a hawkish direction. Powell’s clear, brief reiteration of the Fed’s monetary stance lent support to PIMCO’s outlook for perhaps one more interest rate hike this fall followed by an extended pause. He also noted Fed policy is likely to remain highly data-dependent.

Prior to Powell’s speech, some observers (though not PIMCO) speculated he might delve into a technical discussion of neutral interest rates or even float a trial balloon in the direction of raising the Fed’s inflation target.

He did none of that. Instead, his speech was a direct and thoughtful summary of the sources of post-pandemic inflation, the Fed’s policy response to date, and the outlook for the U.S. economy, inflation, and policy in the quarters ahead. His speech was about reinforcing previous communications, not about signaling a change in direction, tactics, or goals.

Four key messages related to the Fed’s outlook, all of which Chair Powell had conveyed in previous press conferences and interviews:

• The Fed is not contemplating an increase in its 2% inflation target.
• Estimates of r* are uncertain, but the Fed judges that the policy rate is restrictive and above r*. (R-star, or r*, is the estimated real rate of interest that has a neutral impact on economic growth, neither stimulating nor stifling.)
• Fed officials likely need to see some additional softening in the U.S. labor market and a downshift in wage inflation to be confident that price inflation is on a trajectory toward the 2% longer-run target.
• Evidence of above-trend growth or continued tight labor markets could call for higher rates.

Powell concluded by restating the theme of his speech last year at Jackson Hole: The Fed “will keep at it until the job is done” (that is, restoring price stability). While data over the past year likely has Fed officials believing that a “soft-ish” if not soft landing for the U.S. economy is in sight, Powell made clear that a “no-landing” scenario – in which the Fed accepts price inflation at current rates in exchange for avoiding some pain in the labor market – is not in the Fed’s plan.