In the central bank’s view, inflation is very high. The economy is growing too vigorously. The Fed is not comfortable.
jackson hole It is the headquarters of the main annual gathering of the world’s central bankers. They are summoned by the Economics symposium organized by the fed of Kansas City. In that privileged window, Jerome Powell He knew how to announce key decisions of his management. There he presented the new flexible approach to monetary policy in 2020 designed for a reality of slow growth and low inflation rates. In 2021, he characterized the jump in prices as a phenomenon of “transient inflation.” As is well known, this was not the case by a very wide margin. A gross error that still requires work to be corrected. And in 2022, in less than nine minutes, he defined an imminent future of taxes, sweat and tears. The fed he had to win the war against inflation whatever the cost, he said. And he acknowledged that, in fact, it would cost “households and businesses no little suffering.” But, there was no alternative: failing in that endeavor, “would cause much greater damage.” For now, the war is successful and less bloody than expected. Inflation recedes rapidly and the announced recession (yet) has not happened.
What did Powell say in the brand new Jackson Hole issue on Friday? Inflation fell from 9% in June 2022 to 3% last July. Far from claiming victory, he does not trust himself. “Inflation is too high,” she said without denying recent progress. It is that a tenacious illness can insert transitory improvements. For this reason, the central bank is prepared to execute new rate increases if necessary. And let there be no doubts, the 2% inflation goal will be met to the letter.
If notable economists like Jason Furman or Nobel Prize winner Paul Krugman advise raising the target to 3%, that’s up to them. At some point, prior to the pandemic, John Williams, current president of the New York Fed, raised the advisability of evaluating the pros and cons of migrating to 3% or 4% targets (although for academic purposes and not his own). short-term implementation). Today, that topic is taboo. It’s not on the radar. Neither for the Fed nor, by the way, for the ECB. Her boss, Christine Lagarde, was categorical: “You can’t change the rules of the game halfway.” Elementary, Furman. If there is a soft landing – or better yet, a marked decline in inflation with an economy that is still running at overspeed – it is because even stratospheric inflation (four and a half times the target in June 2022) failed to destroy the anchor of The expectations. It would be unwise to undermine that foundation of trust. “2% is and will be our inflation target,” said Powell, curtly and credibly.
What is the synthesis of the conference? In the central bank’s view, inflation is very high. The economy is growing too vigorously. The Fed is not comfortable. That could feed back into the price bonfire. And he then warns that the rate hike has not ended. September is the next meeting, but intervention seems likely only in November. There could be several increases, Susan Collins, from the Boston Fed, dixit. How did Wall Street take it? With changing mood judging by the twists and turns of the quotes. But when Powell stressed that the institution would be moved “carefully,” a no-brainer, his reading turned distinctly positive. It has already been said here: the Fed will be careful not to break the bazaar.
Jackson Hole and raising long rates (a bond market “symposium”, if you will) dominated the agenda. The 10-year rate, rising since May, briefly pierced the highs of the cycle (4.36% versus 4.30%). However, a weak reading from the PMI report was enough to bring it back to 4.24%. The wrestling will continue. It is a guerrilla war. But the dreaded new era of returns above 5% will never dawn if the ascent requires an ever-accelerating economy. And long rates will collapse in the blink of an eye if the PMI report’s signs of weakness are confirmed in hard macroeconomic data. Perhaps for this reason, the Stock Market, which is in summer recess and in the background, far from being embarrassed by so much rate hikes in the candlestick (short and long) scored a slight weekly advance. The S&P500 climbed 0.82% without yet recovering the 50-round average. In other words, without revealing the intention to soon resume the rally that was left on hold. The Ides of September will be taken care of.
Source: Ambito
