Jackson Hole confirms the rather “hawkish” bias on Jerome Powell’s and the Fed’s part. The president of the Fed reasserted messages communicated in previous speeches, that is, the Fed is not convinced that inflation is decreasing towards its 2% objective and three conditions are required for the Fed to be reassured: the pursuit of decreased inflation following the good figures of June and July, a decrease in growth below the potential growth (which has not yet been the case) and a rebalancing of the labour market. In the following months, we might expect interest rates at best stable, and potentially increased in case of poor developments due to inflation. He also mentioned the uncertainty surrounding “R-Star” (the real neutral interest rate). This came as no surprise to the market; the topic having already been discussed by several Fed members at the beginning of August.
Christine Lagarde’s message was more neutral, which is reasonable considering the less favourable European economy. Some members of the European central bank (ECB) reaffirmed their respective biases, Martin Kazaks’ and Joachim Nagel’s were rather “hawkish”, while Mario Centeno took a more neutral stance.
Finally, Kazuo Ueda, the governor of the Bank of Japan, emphasized Japan’s accommodative monetary policy and his belief that the actual pressures linked to inflation would not last.
There were no big surprises globally, especially regarding the worries of the market surrounding a potential increase in “R-Star” in the US. The market feared the Fed’s insistence on it, but it has not been the case. It also needs to be noted that Mr Ueda was more accommodating than the market expected.
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