Fed chief walks tightrope at Jackson Hole

A spectacular mountainous region of the United States this week will provide the stage for central bankers to reflect on the decisions that will help shape the world economy in the coming months.

Officials from institutions such as the US Federal Reserve, the Bank of England and the European Central Bank (ECB) will gather for the annual conference in Jackson Hole, Wyoming.

The meeting comes as the global battle against inflation enters a new phase and markets are looking for clues as to where central banks will go after a series of interest rate hikes.

All eyes will be on Fed Chairman Jerome Powell when he delivers a speech on the economic outlook on Friday.

Christine Lagarde, president of the European Central Bank, will also speak on Friday and Ben Broadbent, deputy governor of the Bank of England, will take the stage on Saturday.

Last year, Powell stressed the Fed’s determination to rein in inflation in a hawkish speech that promised to act “vigorously” even as he acknowledged that rate hikes would bring “some pain” to households and businesses.

Today, the landscape looks very different. Inflation in the US has fallen to 3.2%, still above its 2% target, but much healthier than the 8.5% level at the same time last year.

Europe has also seen inflation fall, while in the UK, although it has taken longer to cope with the price spiral, it has fallen to 6.8%, from a peak of 11.1% in October of the year past. However, Powell is unlikely to be ready to declare victory.

The number of jobs and the economy in general have not been hampered, so far, in the way that many feared would have to happen to try to reduce inflation.

That will be welcome if it means a ‘soft landing’, reducing inflation without too many bumps.

But the concern is that signs of still strong wage growth and resilient consumer activity mean the inflation genie has not been fully put back in the bottle. It leaves rate setters in a quandary about whether soon they should stop raising rates and how long they should stay there.

The wide prairies of the American West provide a suitably dramatic backdrop for the event, which takes place Thursday through Saturday.

Officials from institutions around the world, including the US Federal Reserve, the Bank of England and the European Central Bank (ECB), will gather for the annual conference in Jackson Hole, Wyoming.

In the past, filmmakers have taken advantage of the picturesque surroundings, shooting scenes for westerns like Kevin Costner’s Oscar-winning 1990 blockbuster Dances With Wolves.

For central bankers, it provides a respite from the bustle of Washington, London and Frankfurt.

Neither US, UK or European officials have an imminent decision to make, and none of their next rate-setting meetings will take place until the end of next month.

But the market context is complicated. Bond yields, the price investors charge to buy government debt, are rising amid rising expectations that interest rates will stay high for longer.

Andrew Hunter, deputy chief UK economist at Capital Economics, said rising expectations of an “economic reacceleration” had created a “tense backdrop” ahead of Powell’s speech.

“But with little evidence that stronger growth will threaten to reignite inflationary pressures, we don’t think there is a need for Powell to dust off his aggressive script from last year’s event.”

Ronald Temple, chief market strategist at asset manager Lazard, said: “Powell is expected to perform a balancing act to highlight success to date in lowering headline inflation, while acknowledging that it is too early to say the victory”.

Temple said Lagarde’s speech was also likely to be “smack dab in the middle of the road”, acknowledging that eurozone inflation at 5.3% is still too high, but acknowledging that the ECB’s rate hikes have so far “not yet They’ve made their way completely into the economy.” ‘.

Broadbent will focus on how real income in the UK (how much people earn after accounting for the impact of inflation) has changed, from the run-up to the 2008 global financial crisis to the present day.

It will include his views on inflation and the effects of the ‘second round’, that is, when wages and prices rise in response, threatening a further spiral.

Michael Hewson, chief market analyst at investment platform CMC Markets UK, said: “Markets have been spinning for several weeks on the basis that despite all the aggressive rhetoric from the Fed, the central bank is close or even at the end of its rate hike cycle.

“The key question seems to be less about how much more rates will rise, but for how long they will stay at current levels.”