Markets Weigh Stubborn Inflation Against Resilient Growth

Global markets are weighing inflation against surprisingly resilient economic growth as policymakers debate the timing of further interest rate tightening. The Jackson Hole Symposium drove sentiment this week, with Federal Reserve officials maintaining a hawkish tone on stubborn inflation.

In the US, July inflation data showed limited progress toward the Fed's 2% target, keeping the possibility of additional rate hikes firmly on the table. Headline PCE inflation held at 3.7%, while core inflation remained at 3.3%. Fed Chair Kevin Warsh emphasized that the central bank may need to take further action if inflation does not return to target at an acceptable pace.

Canada's economy delivered a strong upside surprise, expanding at an annualized rate of 3.3% in the second quarter, driven by robust exports and consumer spending. The stronger growth outlook supports the Canadian dollar and reduces pressure on the Bank of Canada to consider policy easing.