The city of Jackson Hole in the United States hosts the annual grand meeting
Central bankers, at their grand annual meeting next Thursday and Friday in the American city of Jackson Hole, are discussing the dilemma of the need to raise interest rates in the face of inflation, but not so much to avoid pushing the economy into recession.
The Grand Teton Mountains (Wyoming) host this meeting every year, led by the US Federal Reserve (Fed), since the era of its former chairman Paul Volcker. The speech of US Federal Reserve Chairman Jerome Powell, which will be delivered on Friday at 2:00 GMT, will be the most awaited moment in this “symposium”.
European Central Bank President Christine Lagarde will not travel to the United States to participate in the event, but Isabelle Schnabel, a German member of the European Central Bank’s Executive Board, will travel there, where she participated on one of the committees on Saturday.
In turn, Andrew Bailey, governor of the Bank of England, confirmed that he would be in Jackson Hole to monitor the discussions without participating in them.
“The cards on the table on the economic level are this: a common enemy is inflation and the risk of the economy slowing too much,” Grigory Volokhin, portfolio manager for Mischaert Financial Services, told AFP. You have to choose between the two.”
However, he notes, “The Fed cannot say that it should choose (…) to raise unemployment to reduce inflation, but that is the option it has.”
This meeting is taking place at a time when central banks around the world are tightening their fiscal policies to combat inflation, with the risk of derailing the recovery.
The US Federal Reserve has raised interest rates four times since March, starting with a quarter of a percentage point, before accelerating the pace.
Inflation also began a welcome slowdown in July to 8.5 percent on an annual basis, after surpassing in June a record price increase in more than forty years, to more than 9.1 percent. Attention now turns to the next monetary meeting on September 20-21, when another sharp rate hike of half or even three-quarters of a percentage point will be introduced.
“It is unlikely that the Jackson Hole conference will bring real news about the Fed’s plans for a future rate hike,” says Carola Bender, who studies economics at Haverford University (Pennsylvania).
Rates range between 2.25 and 2.50 percent, meaning they are close to the so-called “neutral” level that neither stimulates nor slows the economy, which is evaluated between 2 and 3 percent.
Jonathan Millar, an economist at Barclays, notes that Jerome Powell “will seek (in his speech) to shed light on the possible shift in monetary policy in the future. One of the things they want to communicate is that they continue to focus very strongly on the problems of price stability.”
Mazen Issa, a specialist in the foreign exchange market at TD Securities, expects that “Jackson Hole will be very important to highlight” the theory of maintaining high rates, despite the economic slowdown.
US GDP did indeed contract in the first two quarters of the year, in keeping with the classic definition of a recession.
But economists consider that the case is not the case today in the United States, and this is especially due to the solidity of the labor market, which returned in July to the pre-epidemic level, as the unemployment rate reached 3.5 percent, and all jobs that witnessed severe damage were re-created.
A year ago, during this “forum”, Jerome Powell referred to “temporary factors” and warned of the dangers of premature tightening of fiscal policies. But since then, inflation has turned out to be stronger than expected, surpassing central bankers’ expectations.
In the Eurozone, the price hike reached a new record high of 8.9 per cent, while Britain is also experiencing inflation of 10.1 per cent.
Therefore, Carola Bender, in an interview with AFP, points out that “there has to be a lot of discussion about whether there is significant damage to credibility”, in light of the error in estimating the path of inflation, and about “what can be done to fix it.”