Welcome to my latest video presentation. Below is a condensed transcript; the video contains additional details and several charts.

Federal Reserve Chair Jerome Powell’s rather stern speech last Friday can be summed up in four words: Don’t fight the Fed.

After the Fed’s annual meeting in Jackson Hole, Wyoming last week, Powell strongly reiterated that fighting inflation remained the Fed’s top priority and the central bank would do what it takes. His remarks were rightly interpreted as hawkish and sent stocks sharply lower that day.

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said. “These are the unfortunate costs of reducing inflation, but a failure to restore price stability would mean far greater pain.”

Powell added that price stability is “the bedrock of our economy” and “the longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched…Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.”

Stocks promptly tanked, with the major indices closing in the red for the week (see table).

All eyes are now on the Fed’s September 20-21 meeting, during which the Fed could hike rates by 50, 75, or even 100 basis points. The market has been pricing in a rate hike of 50 basis points, but we could get an unpleasant surprise.

Wall Street had been hoping for signs that the inflation fight was nearing an end and the Fed would execute a dovish pivot next month, but those expectations are rapidly dimming.

The U.S. dollar spiked again last week, with the US Dollar Index reaching its highest level in 20 years. The dollar has been rising all year. A stronger greenback reflects tighter financial conditions.

Inflation eases but remains too high…

All this monetary policy gloominess has transpired, even though the latest news on inflation has been encouraging.

The U.S. Bureau of Economic Analysis reported last Friday that the Personal Consumption Expenditures (PCE) index, the Fed’s preferred gauge of inflation, eased in July as gasoline prices continued falling.

In July, the PCE was up by 6.3% compared to a year earlier. That rate far exceeds the Fed’s goal of keeping the PCE rising at a 2% annual rate on average over time, but it’s nonetheless a slowdown from the 6.8% increase over the year through June. Month over month, the PCE fell 0.1% in July.

The “core” PCE, which strips out volatile food and energy components, slowed to gains of 4.6% year over year and 0.1% month over month in July, coming in softer than consensus expectations on both counts. In June, the core PCE readings showed a rise of 4.8% year over year and 0.6% month over month.

Because these numbers are volatile, the trendline is more revealing. The change from June was -0.8% at an annualized rate, and the change in core PCE was +1.0%.

Despite these signs that inflation has peaked, Powell made it clear that the Fed still has a tough job to do.

“While the lower inflation readings for July are welcome, a single month’s improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down,” he said.

The week ahead…

The highlights of this week’s economic calendar are the S&P Case-Shiller U.S. home price index, consumer confidence index, and job openings (Tuesday); Chicago manufacturing PMI (Wednesday); initial jobless claims, ISM manufacturing index, and construction spending (Thursday); the unemployment rate, average hourly earnings, labor force participation rate, and factory orders (Friday).

The latest housing sector numbers have been weak; the Case-Shiller data should signal whether housing’s slide has bottomed. Meanwhile, jobs market data so far this year has been solid.

The most recent manufacturing reports have been a mixed bag, but the data still hover in expansionary territory.

How should you trade amid the uncertain conditions I’ve just described? If you’re looking for a way to generate steady income with reduced risk, consider our premium trading service, Rapier’s Income Accelerator, helmed by our income expert Robert Rapier.

Robert Rapier can show you how to squeeze up to 18 times more income out of dividend stocks, with just a few minutes of “work” each week. Click here for details.

John Persinos is the editorial director of Investing Daily.

Subscribe to John’s video channel: