Arguably the most important man in America right now isn’t Joe Biden. It’s Jay Powell, Chairman of the Federal Reserve. September is traditionally a month that underperforms the market. Since 1945, according to CFRA, the market has declined by an average of 0.56% during September. The Stock Trader’s Almanac also claims that the S&P 500 averages a 0.4% decline in September, the worst of any month. As we’re firmly in the back half of September, we’re essentially in the eye of the hurricane- i.e., the part of the month where most of these losses take place. This September, though, appears to be even more gloomy than usual. Despite COVID numbers that appear to be receding, the virus is still here. It continues to evolve while significantly threatening economic recovery. Meanwhile, we could be seeing a Lehman Brothers situation play out right before our eyes in China, with Evergrande on the verge of defaulting on $300B of debt. But beyond this, Jay Powell has his hands full within the country. Inflation is still hot, and despite what could be encouraging progress, the U.S. has a debt ceiling crisis that could cause the country’s first default in history. Meanwhile, we have a labor market that is nowhere near recovered amid many questions about how hawkish or dovish the Fed needs to be. On Monday, September 20, the indices saw their worst sell-off in months. It was the Dow’s worst sell-off since July, with a dip as much as 972 points, or 2.8% on the day’s lows. Both the S&P and Nasdaq also saw their worst declines since mid-May. Yet after that, the Fed’s September 21-22 policy meeting put investors more at ease. Tapering is inevitable, but the question is how aggressive. Interest rate hikes are also not imminent, and investors like that. The market clawed back much of Monday’s losses, largely thanks to Jay Powell’s statement. Yet we’re nowhere near out of the clear. The Fed has had its hands full this month and will continue to do so. So let’s go through this challenging September, and break down what the Fed’s had to deal with and what it should still continue to deal with.If you exclude those “recovery sectors,” though, not a lot has changed. In fact, inflation in other sectors has continued to heat up by an average of 2.8 percentage points to core inflation. While not out of control, this is still way hotter than the Fed would like. Most importantly, based on the latest CPI report, the underlying trends were somewhat worse than the headline, if not worse.What happens if inflation holds rather than acts as “transitory” like the Fed had told us in the past? Well, prices are already rising faster than wages, making economic inequality even worse than before. We could see household buying power erode as well, which could hurt an already uncertain real estate market. The bottom line is inflation will likely be higher by year-end than projected in June. It’s taking longer for supply chain bottlenecks and shortages that have driven up prices to cool off. The Federal Reserve preferred measure of inflation, the personal consumption expenditure index, is also expected to end the year at 4.2% rather than the previously estimated 3.4%. You better believe that the Federal Reserve is monitoring this closely.Employment also remained well below pre-pandemic levels. 5.6 million fewer workers held jobs, and the total workforce was smaller by 2.9 million. Although jobless claims remain steady at or around pandemic-era lows, August’s jobs report is alarming. We clearly see a gross imbalance in the labor market between government spending, unemployment, and labor growth. The Delta variant certainly has to be blamed for some of this. It’s unquestionably thrown a wrench in economic projections, with 2021’s GDP now projected to rise 5.9%, compared to the 7% projected in The Federal Reserve also now expects unemployment to be slightly higher at 4.8% by the end of the year, also higher than previously thought. Yet the market on September 22nd liked what the Fed had to say.