What are we talking about? Fed Chair Powell delivered his opening remarks at the annual Jackson Hole Economic Policy Symposium. Those remarks have been a significant topic of discussion for some weeks – would Powell be hawkish? dovish? nuanced? cautious? Jackson Hole, for those who care, is reputed to be one of the steepest ski mountains in the US – which perhaps inspired Powell just to go for it.
Anyone looking for signs of wavering on the 2% inflation will have been disappointed. Phrases like “Restoring price stability….requires using our tools forcefully to bring demand and supply into better balance. Reducing inflation is likely to require a sustained period of below-trend growth” don’t sound terribly nuanced. For those betting on a rate cut in 2023, Powell responded with “the historical record cautions strongly against prematurely loosening policy”. And he highlighted a particularly painful truth “The burdens of high inflation fall heaviest on those who are least able to bear them”
Enough quotes. The message was pretty clear – hike faster, stay higher for longer and accept, in fact expect, that demand will weaken as a result. It might not change rate expectations in the long-term too much, but the market will probably view another 75 bps hike in September as more likely. And, with US inflation perhaps already having peaked, these remarks also highlight the challenges facing the Bank of England and the ECB. We’ve talked in the past about the challenges facing Central Bankers – but with decelerating (albeit high) inflation and demand beginning to slow (albeit from high levels), maybe the Fed has the strongest hand at the table as we head into winter.
