In Jackson Hole, Fed chairman stands firm against inflation

Stop or continue with the rise in interest rates? The president of the Federal Reserve The US (Fed, central bank), Jerome Powell, gave a first element of response in his opening speech at the annual meeting of central bankers in Jackson Hole (Wyoming), by reiterating that the door is open for further increases before the end of anus.

In this cult appointment of the world’s main central bankers, highly anticipated by the markets, the speech of the head of the fed did not leave much room for doubt about the central bank’s determination to contain inflation through rate policy.”restrictive”.

Speaking a month before the next meeting of the body’s Monetary Policy Committee (FOMC), Powell noted that while “inflation fell from its peak“, likewise “still too high”.

“We stand ready to raise interest rates further if necessary and intend to maintain a tight monetary policy until we are confident that inflation is durably moving towards our target”, he emphasized.

“To bring inflation durably to 2% will require a period of below-trend (current) economic growth, as well as a moderation in labor market conditions”, which continues with very low unemployment rates of around 3.6%, remarked Powell.

“Any hint of above-trend growth could block further progress on inflation and call for monetary tightening”, he warned.

For the last 18 months, the Fed has maintained its orientation: raise rates rapidly to prevent expectations of lastingly high inflation from consolidating, with significant risks for the economy.

As a result, since March 2022, the institution has increased its rates 11 times, taking them from a level close to zero to a range of 5.25%-5.50%.

High rates make credit more expensive, and therefore discourage consumption and investment, thus lowering the pressure on prices.

Inflation peaked in June 2022 at close to 9% per year, and then has been falling steadily to settle at 3% in June, according to the PCE index, which is the most followed by the Fed.

Many economists agree that taking it to 2% could be the most difficult stage.

no consensus

In the case of the European Central Bank (ECB) the question is basically the same.

The ECB raised its rates for the first time in mid-July 2022, and has raised eight since then to the current 3.75%, a record since the spring of 2001.

The president of the entity, Christine Lagarde, recalled during her speech the will of the ECB to continue with a restrictive policy.

According to Lagarde, the current level of inflation in Europe implies “fixing interest rates at a sufficiently restrictive level for as long as necessary to bring inflation” to the target “2% in the medium term”.

The situation in the euro zone, however, is more complicated, with inflation moderating but very slowly and still standing at 5.3% in its July measurement. But, above all, there is a great disparity between the countries of the European Union. Spain is below 2% but Germany and France have higher records and Slovakia is above 10%.

Fed members have differing views on whether or not to pause rate hikes. Some consider that the bulk of the work is already done; others, more orthodox, propose to continue rising.

In the United States, despite the rapid and wide rise in rates, the economy is resilient.

Markets anticipate, with a consensus of 80%, a new pause in monetary tightening at the next Fed meeting on September 20, according to data from CME Group.

Wall Street reacted calmly to Powell’s speech in Wyoming. The Dow Jones advanced 0.73%, the technology-based Nasdaq 0.94% and the S&P 500 0.67% at the closing bell.