“Every word of Powell is weighed in gold”. Before the important central bank meeting in Jackson Hole in the US state of Wyoming, the market is speculating about the extent of forthcoming interest rate hikes, especially by the US Federal Reserve, but also by the European Central Bank (ECB). By Wolfgang Ehrensberger
On Tuesday, slightly weaker economic data from the US, in particular a falling S&P purchasing managers’ index, fueled hopes among some market participants that the Fed might not be as aggressive as expected with its next interest rate hike in September.
However, the leading German index DAX remained under cover on Wednesday morning and started trading slightly in the red. On Tuesday it closed 0.3 percent lower at 13194 points. “After the end of the recent euphoria, investors are now rather depressed,” says IGMarkets expert Christian Henke, summing up the situation on Wednesday morning. “Like the flight of Icarus through the sun, the high flight ended abruptly. The DAX is now descending towards the psychologically important 13,000 point mark.”
The meeting in the legendary Jackson Hole
Starting Thursday, the world’s leading central bankers will meet in the town of Jackson Hole, Wyoming, to discuss the next rate hike. Jerome Powell’s speech on Friday is eagerly awaited. The head of the US Federal Reserve has already hinted at a possible large interest rate hike at the next interest rate meeting on September 21st. An unusually large interest rate hike of 0.75 percentage points to combat inflation had already been decided in July. With another hike of this magnitude in September, the Fed would already advance to a restrictive level of interest rates, which could also slow down the economy.
“The meeting of the central bankers in the tranquil Jackson Hole in the US state of Wyoming is always an important event for market participants,” explains Henke from IGMarkets. “Especially this year, every word of Fed Chairman Jerome Powell is likely to be weighed up. The statements are not only analyzed in detail, but could shape the development of the financial markets for the next few weeks.”
Despite the recent somewhat weaker economic data, experts are expecting the head of the Fed to make a clear statement in the direction of a significant interest rate hike. “He will reiterate that the Fed’s main goal is to get inflation under control – it’s not there to support the stock or bond markets,” Chris Grisanti, chief strategist at MAI Capital Management, told the Archyde.com news agency.
And what is the ECB doing?
In the meantime, the European Central Bank (ECB) could also raise interest rates sharply again at its next interest rate meeting on September 8th, despite the risk of recession. The inflation outlook has not improved since the July meeting, central bank director Isabel Schnabel recently told the Archyde.com news agency. “In July we decided to hike by 50 basis points given the inflation outlook. At the moment I don’t think that outlook has fundamentally changed.