What happened this week

All three major indexes declined more than 4% for the week, the markets had a roller coaster week of trading with investors weighing worries over Fed tightening against economic data that pointed to underlying strength in the U.S. economy.

On Thursday, indexes were ahead after data showed the economy shrank less than previously thought in the second quarter. The revised GDP rate shrank 0.6% vs the previously reported 0.9% but continued to meet the technical criteria for a recession.

The big moves came on Friday after Jerome Powell, Federal Reserve Chairman, spoke vowing to continue raising rates to fight inflation, even at the expense of economic growth. Surprisingly the markets dropped dramatically in reaction to his statements, with the Dow Jones Industrial Average dropping 1000 points, despite investors expecting and bracing for Powell to continue to hold a tough stance on fighting inflation.

Even with this week’s losses, the S&P 500 is up 11% from its June low. Stocks rallied for much of the summer based largely on solid corporate earnings season and some upbeat data releases despite inflation.

The Federal Reserve is likely to decide whether to raise rates by half point or 0.75 point at their next meeting, Sept. 20-21.

Additionally data released Friday showed that the core PCE, personal-consumption expenditures, price index—the Fed’s preferred gauge of inflation—came in slightly below forecasts, indicating inflation pressures may be easing.

In other news this week Biden announced up to $20,000 in federal student loan forgiveness for borrowers earning less than $125,000. The student loan handout is expected to cost roughly $500B, according to Committee for a Responsible Federal Budget, critics argue the program will contribute to already record-high levels of inflation in the U.S. Senate Minority Leader Mitch McConnell argued the program is "yet another way to make inflation even worse, reward far-left activists, and achieve nothing for millions of working American families who can barely tread water."

Looking ahead to this week:

Tues Aug 30: S&P Case-Shiller US Home Price Index (benchmark fo single family home prices In the US calculated monthly)

Thurs Sept 1: Jobless Claims

US Manufacturing PMI

Construction Spending (all indicators of how the economy is responding inflation and Fed expectations for further rates hikes)

Fri Sept 2: August Unemployment Rate