Bringing together the world’s most important central bankers and financial market participants in the town of Jackson Hole, Wyoming every year, the symposium will be held this year with the theme of “Reevaluation of Constraints on Economy and Policy”.
Kansas City FedThis year’s theme of the symposium, hosted by .
In line with the extraordinary policy response to the pandemic, questions will also be raised about what constraints bind macroeconomic policy, such as concerns over fiscal sustainability and the ultimate size of central bank balance sheets.
PREPARING FOR ‘SHAHIN’ MESSAGES
Global investors, on the other hand, focused on Fed Chairman Powell’s messages at the Jackson Hole Economic Policy Symposium on Friday.
While the concerns that the Fed will continue to raise interest rates aggressively despite the risk of recession in the face of high inflation, more clues will be sought regarding the Fed’s possible monetary policy steps in Powell’s speech.
Analysts stated that investors are preparing themselves for the “hawkish” messages from Jackson Hole. Pointing out that Powell is expected to repeat his commitment to reduce inflation, analysts noted that it is expected to give an aggressive tightening message.
Goldman Sachs economists said they expect Powell to stick to the tightening messages he gave after the Federal Open Market Committee (FOMC) meeting in July.
UNCERTAINTY RISE
Inflation, which emerged as the Kovid-19 epidemic disrupted the supply chain and accelerated as the Russia-Ukraine war increased commodity prices, became a major concern in the USA and increased the pressure on the Fed to ensure price stability.
While annual inflation in the country reached the peak of 41 years with 9.1 percent in June, it increased below expectations with 8.5 percent in July.
The Fed, whose monetary policy tone started to change in the last quarter of last year in the face of rising inflation, had increased interest rates by 225 basis points in total since March.
Fed Chairman Powell, in his statement after the bank’s FOMC meeting held in July, emphasized that they will look for convincing evidence that inflation has decreased in the coming months, and that the pace of interest rate increases will continue to depend on incoming data and the improving outlook of the economy.
In the minutes of the Fed’s July meeting, announced last week, it was emphasized that interest rate hikes would continue until inflation dropped significantly, while pointing out the risks that there might have been an excessive tightening in the ever-changing economic environment created a dilemma.
On the other hand, while the statements of Fed officials mainly pointed to a 75 basis point rate hike, the fact that the minutes of the last meeting of the bank left the door open for a 50 basis point increase increased the uncertainties regarding the size of the Fed’s rate hike in the next month’s meeting.
In the pricing in the money markets, the Fed’s predictions that it will increase interest rates by 50 basis points with a 37.5 percent probability and by 75 basis points with a 62.5 percent probability at the September meeting came to the fore.
Desmond Lachman, Senior Specialist at the American Enterprise Institute (AEI), said inflation is still close to the highest level recorded since 1981 and the labor market is very strong.
“Fed Chairman Jerome Powell in Jackson Hole on Friday appears likely to reiterate his intention to maintain the hawkish monetary policy stance until the Fed sees very clear signs that inflation has fallen significantly,” Lachman said.
Stating that the continued aggressive interest rate hikes at a time when the economic weakening started at home and the economic storm broke out abroad, dragged the USA into a hard economic descent, Lachman said, “It is necessary to hope that the Fed soon realizes this risk and slows the rate of interest rate hikes. However, Powell said. I don’t expect him to do that in Jackson Hole.” he said.