Fed Elevates Ambiguity to the Heart of Monetary Policy at Jackson Hole

investing.com:

A famous market adage says bond vigilantes are just like equity perma-bears, except for the fact that they understand math. That’s probably because, unlike perma-bears, vigilantes are famous for knowing when the risk-premia is too unfavorable for them — and just when it isn't.

For those unfamiliar with the term, ‘bond vigilantes’ was coined in the early 80s by the famous Ed Yardeni at the height of the inflation crisis. It refers to a bond trader who wields their influence by selling a significant volume of bonds. They do this to express their disapproval or dissatisfaction with the policies of the bond issuer.

Amidst Powell’s latest actions, one aspect has become strikingly clear: Powell & Co.’s number one goal in recent months has been to ensure that the bond market stays precisely where they want it to be, that is: dazed and confused.

The reasoning behind the Fed’s logic is simple: it wants to prevent the market from anticipating either easing or tightening financial conditions, thus maintaining an upper hand over the bond market in terms of adapting monetary policy according to the economic data.

This situation, illustrated in part by the divergence in futures positions, grants the Federal Reserve Chair and fellow policymakers significant room for maneuver in promptly adapting their policies over the upcoming months in response to evolving economic data.

In fact, following Powell's Kobe Bryant moment at the Jackson Hole Symposium last week — where the Fed President clearly stated, “Job not done” or, in his lexicon: “We have a long way to go” and reaffirmed the Federal Reserve’s commitment to the 2% inflation target —, the likelihood of a rate hike in September saw a notable increase, rising to approximately 20%,