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Jackson Hole symposium this week: US Fed Chair Powell may keep focus on inflation even if it means recession

US Fed Chairman Jerome Powell is scheduled to make a speech later this week in a symposium held in Jackson Hole valley, Wyoming, USA. Powell is expected to correct market expectations from the last Fed meeting in July

Jackson Hole symposium this week: US Fed Chair Powell may keep focus on inflation even if it means recession
Powell will have a chance – if he wants to take it – to reset expectations in financial markets when central bankers gather at the Jackson Hole retreat (Pic: Bloomberg)

US Fed Chairman Jerome Powell is scheduled to make a speech later this week in a symposium held in Jackson Hole valley, Wyoming, USA. Powell is expected to correct market expectations from the last Fed meeting in July. In July’s meeting, the Fed recognised that some ‘recent indicators of spending and production have softened’. This led to people saying, ‘The Fed has taken a dovish shift’. There was then a run in equities, a drop in the US Dollar, and a drop in yields as markets looked for a ‘dovish pivot’. Powell is likely to correct this perception with a more hawkish stance in his speech at the Jackson Hole symposium on Friday, according to economists, market analysts.

A chance to reset expectations in financial markets

According to a Bloomberg report, Powell will have a chance – if he wants to take it – to reset expectations in financial markets when central bankers gather at the Jackson Hole retreat. Powell speaks on the economic outlook at 10 am Washington time on Friday, and is expected to re-state the US Fed’s resolve to keep raising interest rates to get inflation under control, though he is likely to stop short of signaling how big officials will go when they meet in September. In the past, Fed chairpersons, aware of the heightened attention, have used their speeches at the Jackson Hole meeting to provide an update on economic conditions and signal policy shifts ahead.

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Fed to bring down inflation even if it means a recession?

Economists believe that Powell might use his closely-watched Jackson Hole speech to stress that the central bank is going to bring down the high US inflation rate even if it means a recession. A MarketWatch report quoted Lou Crandall, chief economist of Wrightson ICAP, as saying, “The core message will be the Fed’s dogged determination to bring inflation down even though they know they’ll be running substantial risks of a weaker short-term growth outlook than they would like.” Crandall was further quoted saying that in Powell’s speech, the Fed’s determination to hold the line in the face of a weak economy and weak labor market will be front and center. “Inflation has gotten to the point where they have no choice but to accept that risk,” Crandall added.

More guidance on policy rate outlook unlikely

According to a Reuters report, there’s probably not much more guidance that Powell can give markets on the policy rate outlook at Symposium – not least because the Fed itself admits there’s little long-term visibility on inflation or the economy right now. However, anything Powell says regarding quantitative tightening or “QT” and reducing the bank’s near-$9 trillion balance sheet will grab a lot of attention. Note that the US Fed’s stance on rates seems fairly clear – it will continue to lift them, even into restrictive territory, and hold them there until it sees inflation and inflation expectations are on a sustainable path down toward its 2% target.

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This annual symposium has been held since 1978; and in Jackson Hole since 1981 and it is usually held in the month of August, just ahead of the pre scheduled US Federal Reserve Open Market Committee (FOMC) meeting in September. Many prominent central bankers, finance ministers, reputable academicians and market participants attend this symposium to discuss the currently important issues facing the global economy.

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