Fed Chairman Jerome Powell’s Jackson Hole speech received a great deal of attention, as is to be expected. Each year, a Fed Chair is slated to offer their views at this venue, and given the fact it typically occurs in late August, there’s not much else going on to pay attention to, at least headline-wise. In addition, this appearance tends to get sandwiched right between FOMC meetings, so it’s a chance for the markets to hear the “latest and greatest” from the Fed Chair himself.

There certainly hasn’t been a shortage in media coverage both before and after the speech, so we don’t necessarily want to add to the mix. However, there was one aspect of Powell’s prepared remarks that caught our attention, especially given the context of what is now being forecasted. What do we mean, you might ask? Well, we are referring to the Chairman’s reference to the state of the economy—more specifically, how he identified above-trend growth.

Here is the exact wording we wish to draw your attention to: “So far this year, GDP (gross domestic product) growth has come in above expectations and above its longer-run trend, and recent readings on consumer spending have been especially robust. In addition, after decelerating sharply over the past 18 months, the housing sector is showing signs of picking back up.” Powell went on further to comment that “Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy.”

This whole reference point comes back to a topic we’ve been consistently writing about regarding the widely expected recession that wasn’t…at least not yet anyway. So, let’s take a look at what Powell considers to be above-trend growth. Thus far in 2023, real GDP has averaged +2.2% through the first six months. Yes, we concede that this level of growth has certainly “come in above expectations,” but is it really “above its longer-run trend”?

While the forecasts for Q3 real GDP are currently on either side of +2%, there is one projection that makes you really stand up and take notice. That comes from the Atlanta Fed’s widely followed GDPNOW forecast, which, as of late last week, came in at an eye-opening +5.9%. Looking at this logically, if Powell thinks a +2.2% growth level is “above-trend,” how would he classify a reading almost three times higher? We would venture a guess that fits into his warranting of a “further tightening of monetary policy.”

As we mentioned last week, there is still a long way to go before September 20. This week, the markets will receive fresh data on the labor markets (another specific reference regarding the potential for another rate hike) as well as the PCE deflator data. For the voting members, it’s all about the totality of the data going forward.