Raise rates against inflation, but not too high to avoid bringing the economy to its knees: This dilemma, facing central bankers, should be at the center of their big annual mass, Thursday and Friday in the American West, in Jackson Hole.
The majestic mountains of Grand Teton (Wyoming) will receive the president of the American Central Bank (Fed), Jerome Powell, on Friday at noon. The president of the European Central Bank (ECB), Christine Lagarde, however, will not travel to the United States for the traditional meeting.
But Isabel Schnabel, a German member of the ECB’s executive committee, will go there and participate in a panel on Saturday. Andrew Bailey, the Governor of the Bank of England (BoE), confirmed that she would be present at Jackson Hole, but only to observe the discussions, not participate in them.
Inflation is finally falling in the United States
Central bankers are tightening their monetary policies to combat inflation. The one exception is the Chinese central bank, where inflation remains below 3%, which is cutting rates. The Fed has already raised rates four times since March, and the ECB ended 11 years of contained rates by raising rates this summer.
First from the usual quarter of a percentage point, before picking up the pace. A new strong rise is on the table for its next monetary meeting, at the end of September: half or even three-quarters of a percentage point is announced.
In response, inflation began a welcome slowdown across the Atlantic in July, to 8.5% per year, after breaking a record price increase for more than 40 years in June, at +9.1%.
“The Jackson Hole conference…is unlikely to bring any real news about the Fed’s plans for future rate hikes,” according to Carola Binder. The rates are between 2.25 and 2.50%, bordering on the so-called “neutral” level, which neither stimulates nor slows down the economy, evaluated between 2.00% and 3.00%.
economic adjustment
This focus on price stability pushes any consequences for employment to the background: US GDP has already contracted during the first two quarters, which corresponds to the classic definition of a recession.
Many observers also believe that the labor market will have to slow down in Europe and the United States – that is, unemployment will have to increase – to bring inflation to levels close to 2%, a mandate imposed by the ECB.
A year ago, during this “symposium”, Jerome Powell mentioned “transient factors” and warned of the risks of premature tightening. But since then inflation has turned out to be harsher than expected, exceeding central bank forecasts. This year’s meeting should also restore the credibility of the central bankers after this erroneous forecast.
Source: BFM TV
