Central bankers eyeing inflation and a recession in Jackson Hole

Raise rates to combat inflationbut not too much to avoid bringing the economy to its knees: this dilemma facing central bankers around the world will be at the top of the agenda at their annual meeting in jackson holeUnited States, on Thursday and Friday.

Every year the majestic mountains of the Grand Teton (Wyoming) receive this meeting organized by the Federal Reserve (Fed, central bank), an initiative launched by the legendary president of the organism Paul Volcker.

The most awaited moment of this international meeting will be the speech by the president of the Fed, Jerome Powellon Friday at 14:00 GMT.

The President of the European Central Bank (ECB), Christine Lagarde, will not be present. But Isabel Schnabel, who sits on her board representing Germany, will participate in a panel on Saturday.

Andrew Baileythe governor of the Bank of England (BoE), confirmed his presence, although he announced that he will not speak.

“The cards are on the table in economic matters: a common enemy that is inflation, a risk of doing too much (raising interest rates too much) to cool down the economy. You have to choose between the two,” Gregori Volokhine summed up before the meeting. , portfolio manager of Meeschaert Financial Services, in dialogue with the AFP.

However, “the Fed cannot say that it must choose (…) between increasing unemployment or lowering inflation, but it is the choice it has,” he adds.

“Transition”

This meeting will take place at a time when central banks around the world are adjusting their rates upward to fight inflation, even though this may affect the recovery after the pandemic.

An increase of interest rates it makes credit more expensive and therefore slows consumption and investment, thus cooling the economy and putting pressure on prices.

The Fed has already raised its benchmark interest rates four times since March, and the market is wondering about the magnitude of future hikes that are taken for granted.

12-month US inflation moderated in July, to 8.5% from 9.1% in June, a figure that marked a 40-year high.

Investors anxiously await the next Fed meeting on September 20 and 21, and specialists debate whether the increase in interest rates will be half a percentage point or three quarters of a point, as in the last two occasions.

The US benchmark rates they are between 2.25%-2.50%, close to a level considered “neutral” of 2-3%, which does not stimulate or slow down economic activity.

Powell, in his speech on Friday, “will want to emphasize the probable transition that will take place with monetary policy in the future. One thing they want to communicate is that they are focused on price stability issues,” said Jonathan Millar, an economist at Barclays .

Credibility

“Jackson Hole could be very important in enlightening us” on the hypothesis of keeping rates high despite an economic slowdown, said Mazen Issa, a foreign exchange specialist at TD Securities.

The GDP of the United States contracted in the first and second quarters, a succession that responds to the classic definition of recession, although in the United States other parameters are considered to determine that stage of the economy, such as the level of employment.

The United States registers 3.5% unemployment, a historical low equivalent to the level of February 2020, before the pandemic. The economy recovered all the jobs lost during the coronavirus.

A year ago at the same meeting, Powell spoke of “transitory factors” to explain inflation, and warned of a premature rate adjustment. But since then, inflation has set in.

In the euro zone, the rise in prices broke a record, at 8.9% in 12 months. England for its part has double-digit inflation, 10.1 percent.

“There should be many discussions about a possible greater damage to the credibility” of central banks, with this trajectory error for inflation, and “what could be done to repair it,” Carola Binder, professor of Economics, estimated in dialogue with AFP. at Haverford College in Pennsylvania).



Source link

Previous Story

Samaniego insists on knowing the evidence against Velázquez

Latest from Mexico