Central bankers vacillate between inflation and recession

(Washington) Raising interest rates against inflation, but not too much so as not to bring the economy to its knees: This dilemma facing central bankers should be the focus of their annual high mass, held Thursday through Saturday in the American West Jackson Hole.

Posted at 11:10 p.m

Julia Chabanas
Media Agency France

The majestic mountains of Grand Teton, Wyoming have hosted this gathering every year under the auspices of the US Federal Reserve (Fed) since the era of its former President Paul Volcker.

The most anticipated moment of this “symposium” will be Fed Chair Jerome Powell’s speech on Friday.

The President of the European Central Bank (ECB), Christine Lagarde, will not be making the trip to the USA. But Isabel Schnabel, a German member of the ECB’s executive board, will take part in a panel on Saturday. Bank of England (BoE) Governor Andrew Bailey confirmed he would be present in Jackson Hole, but only to observe the discussions without taking part.

“The cards are on the table at the economic level: a common enemy, inflation, a risk of slowing down the economy too much. You have to choose between the two,” Gregori Volokhine, portfolio manager at Meeschaert Financial Services, told AFP.

However, “the Fed cannot say it has to vote […] raise unemployment to lower inflation, but that’s their choice,” he stresses.

” Crossing ”

This meeting comes at a time when central banks around the world are tightening monetary policy to fight inflation. However, at the risk of impeding recovery.

The powerful US Federal Reserve has hiked interest rates four times since March. First the usual quarter percentage point before the tempo picks up.

And inflation began a welcome slowdown to 8.5% over a year in July after breaking a more than 40-year inflation record of +9.1% in June.

All eyes are now on the next September 20-21 currency session, which is set for another sharp rise, half a point or even three quarters of a point.

“It is unlikely that the Jackson Hole conference […] brings real news about the Fed’s plans for future rate hikes,” said Carola Binder, an economics professor at Haverford College in Pennsylvania.

Prices are between 2.25 and 2.50%, bordering on the so-called “neutral” level, which neither stimulates nor slows down the economy, evaluated between 2.00% and 3.00%.

In his speech, Jerome Powell will “want to emphasize the likely transition that will take place in monetary policy in the future. One thing they’re keen to communicate is that they remain very focused on price stability issues,” notes Jonathan Millar, economist at Barclays.

credibility

“Jackson Hole could be very important to enlighten us,” assuming that interest rates remain high despite an economic slowdown, agrees Mazen Issa, FX market specialist for TD Securities.

US GDP has already contracted in the first two quarters, which corresponds to the classic definition of a recession.

But according to economists, that is not the case in the United States today, particularly due to the health of the job market, which returned to its pre-pandemic levels in July with an unemployment rate of 3.5% and all the jobs destroyed are now being rebuilt.

A year ago, during that “symposium,” Jerome Powell mentioned “transient factors” and warned of the risks of a premature tightening. But since then, inflation has proved tougher than expected, exceeding central bank forecasts.

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