WIYOMING, United States: Raising rates against inflation, but not too much to prevent the economy from falling to its knees: This dilemma facing central bankers should be at the heart of their annual high mass Thursday and Friday in the US West, at Jackson Hole.
The majestic mountains of Grand Teton (Wyoming) have hosted this gathering every year, led by the US Central Bank (Fed), since the time of its former president, Paul Volcker.
The most anticipated moment of this “symposium” is the speech by US Central Bank (Fed) President Jerome Powell on Friday at 2:00 PM GMT.
However, the president of the European Central Bank (ECB), Christine Lagarde, will not make the trip to the United States. But Isabel Schnabel, German member of the ECB’s Governing Council, is going there and will participate in a panel on Saturday.
Andrew Bailey, the Governor of the Bank of England (BoE), confirmed to him that he would be present in Jackson Hole, but only to observe the discussions, without participating in them.
“In economic terms, the cards are on the table: a common enemy is inflation, a risk that the economy will slow down too much. You have to choose between the two,” Gregori Volokhine, portfolio manager of Meeschaert Financial Services, told AFP.
“However, the Fed cannot say that it must choose (…) to raise unemployment to reduce inflation, but it is the choice it is given,” it underlines.
– “Transition” –
This meeting comes at a time when central banks around the world are tightening their monetary policy to fight inflation. However, at the risk of hindering the recovery.
The mighty US Federal Reserve has already raised interest rates four times since March. First off the usual quarter of a percentage point, before picking up the pace.
And inflation started a welcome slowdown in July, to 8.5% year-on-year, after beating a more than 40-year price increase record in June, to +9.1%.
All eyes are now on the next monetary meeting, September 20-21, for which another significant increase is on the table, half or even three-quarters of a percentage point.
“The Jackson Hole conference is unlikely (…) to bring any real news about the Fed’s plans for future rate hikes,” said Carola Binder.
Rates are between 2.25 and 2.50%, bordering on the so-called “neutral” level, which does not stimulate or slow the economy, estimated between 2.00% and 3.00%.
During his speech, Jerome Powell will want to “emphasize the likely transition that will occur in the future with monetary policy. One thing they absolutely want to communicate is that they remain very focused on price stability issues,” notes Jonathan Millar, economist at Barclays.
– Credibility –
“Jackson Hole could be very important to inform us” on the assumption that interest rates will remain high despite an economic slowdown, also anticipates Mazen Issa, foreign exchange specialist for TD Securities.
US GDP has already contracted in the first two quarters, which is in line with the classic definition of a recession.
But according to economists, this is not the case today in the United States, mainly because of the solid job market, which returned to pre-pandemic levels in July, with an unemployment rate of 3.5% and all the jobs that were destroyed are now being recreated. .
At this “symposium” a year ago, Jerome Powell called “temporary factors” and warned of the risks of a premature tightening. But inflation has since proved harder than expected, surpassing central bankers’ forecasts.
In the Eurozone, the price increase has broken a new record of 8.9%, and England is even dealing with double-digit inflation (10.1%).
So, “there should be a lot of discussion as to whether or not there has been major credibility damage,” with this inflation path flaw and “what can be done about the repair,” Carola Binder, who teaches economics at Haverford College, Pennsylvania, told AFP.