Jackson Hole: Powell stays the course underlines Pictet Wealth Management

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(Crédits photo : Federal Reserve)

(AOF) – Fed Chairman Jerome Powell gives a speech in line with expectations. In particular, the horizon of the ‘tap’ remains for the end of the year, as already stated in the minutes of the FOMC, while it separates as expected the tap from the first rate hike, which for him responds to an economic test. more demanding, commented Thomas Costerg, senior US economist at Pictet Wealth Management.

Another message from the speech according to the management company is the confirmation of last year’s change in strategy in favor of “inflation targeting on average” (one notch more ‘dovish’).

The overall picture remains unchanged observes Thomas Costerg: it is a Fed which is very accommodating despite the nuance of the short term ‘tap’. Powell remains more worried about disinflationary forces than inflationary ones. He does not believe in a new post-Covid inflation regime. It is also a Fed that is much more sensitive to the American economic and financial cycle, and therefore much more cautious of taking a risk of monetary error.

The economist points out that the Fed has a broad interpretation of its full employment mandate, with more and more social considerations, as Powell once again reminds us in the speech.

In short, he adds, it is a Fed that adds to itself constraints to tighten rates, between the new social imperatives (soon to be climatic) and the high debt levels, and obviously the sub-political constraints. underlying.

It is therefore a dovish regime in which we are, with the ‘typing’ a simple nuance, especially since the Fed’s balance sheet will remain large for many years (QT is improbable), specifies Thomas Costerg.

In the short term, Pictet Wealth Management’s scenario remains a decision to reduce monthly QE in November 2021, with a first drop in purchases of 15 billion. The manager sees the first rate hike in summer 2023, followed by rather symbolic increases since the Fed funds rate, according to him, should remain permanently below the level of inflation.

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