Swonk: Fed Independence, Inflation Key for Jackson Hole

Summary

Diane Swonk expects Fed Chair Kevin Walsh to use Jackson Hole to emphasize Fed independence, inflation-fighting commitment, and a decision rule. She warns that upcoming core PCE data will look sticky and that energy/diesel costs are rebounding on refinery and Canadian import constraints. She also argues AI investment costs are appearing before productivity benefits, potentially raising the neutral rate and making current Fed policy too accommodative.

• Swonk says the Fed chair needs to stress Fed independence, commitment to lowering inflation, and a policy decision rule.
• The July press conference is seen as a reset motivation for the upcoming Jackson Hole speech.
• Core PCE above two-tenths of a percent monthly is described as unsustainably sticky.
• Diesel and energy prices are seen rising on refinery capacity limits and slowed Canadian imports from maintenance.
• Treasury attempts to cap long-term interest rates are described as marginal because the Treasury market is too large.
• AI investment costs are seen arriving before productivity gains, potentially making AI temporarily inflationary.
• Swonk says higher productivity may raise the noninflationary speed limit and make the fed funds rate too low.
• Fed committee dissent and task forces mean decisions are not the chair's alone.