Starting today, the world’s most important central bankers will meet in Jackson Hole, USA. Stockbrokers are hoping for new clues about the currency guardian’s course: Has the interest rate rally peaked?
In a small valley in the former Wild West of the USA, in the Rocky Mountains, lies Jackson Hole – known for its national parks and winter sports. But once a year the wasteland in the US state of Wyoming becomes what is probably the most important location for the financial sector.
“All the big and most important central banks in the world come together to discuss monetary policy strategies and monetary policy orientations,” explains Carsten Mumm, chief economist at private bank Donner & Reuschel. Stockbrokers have high expectations of what will be discussed there in the next three days.
Differences between USA and Eurozone
The big topic of the meeting is inflation. In recent months, the central banks have raised their key interest rates to combat inflation. The price pressure has eased significantly. But the consequences of the rapid rate hikes are now being felt – albeit in very different ways.
While the economy in Europe is weakening significantly and Germany could slide into recession, the skid marks in the USA are less severe. Most recently, the inflation rate there was even 3.2 percent – close to the two percent target.
“All the headwind is still there”
So is the US Federal Reserve’s plan working and a recession avoided in the United States? That’s the trillion-dollar question, says US economist Brett Ryan from Deutsche Bank Research: “What surprised us is the strength of the economy today,” he says. “All the headwinds we’ve been pointing out for months are still there. But the momentum so far certainly increases the likelihood of a soft landing.”
Fed Chair Jerome Powell is at the center of the central banker conference. Powell was determined in Jackson Hole last year and emphasized staying power. Surveys of economists see interest rate hikes at their peak. Powell himself has so far left open whether further tightening is imminent or whether the US Federal Reserve will take a break in September.
Interest rate pause also in Europe?
In view of the recent poor economic data from the euro zone, the European Central Bank could also pause interest rates in September, economist Mumm suspects: “I think that the central banks are doing everything they can to underpin their determination. That’s because inflation expectations are the main and are important factors that the central banks are fighting.”
So it’s about credibility – and the question of whether investors trust the central banks to ensure price stability. It is questionable whether the head of the European Central Bank (ECB), Christine Lagarde, will make any clear statements about its further course, says Edgar Walk, chief economist at Bankhaus Metzler. “My expectation is that both Powell and Lagarde will keep their options open,” he said.
Central bankers with sensitivity
Walk rather expects the two central bank heads to say: “‘We’re just looking at the data, we’ll look at every economic number, every inflation number until the next meeting and only then will we decide’.”
The next difficult task awaits the powerful central banks. In the face of persistent inflation, they need to fine-tune their policies – finer and more precise – to stay in control. Maybe the Jackson Hole wasteland in the American Midwest is just the right place for it.