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 Tetons, “Wyoming”, host this meeting every year, led by the US Federal Reserve, since the era of its former president, Paul Volcker, according to “French”.
The speech of US Federal Reserve Chairman Jerome Powell on Friday at 2:00 GMT will be the most awaited moment in this “seminar”.
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 will participate Saturday in one of the committees.
In turn, Andrew Bailey, governor of the Bank of England, confirmed that he will 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 has to choose between the two,” says Grigory Volokhin, portfolio manager for Mischart Financial Services.
However, he notes, “the Fed cannot say it should choose, to raise unemployment to lower inflation, but that is the option it has.”
The meeting is taking place as central banks around the world are tightening their fiscal policies to fight 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, following surpassing in June a record price increase in more than 40 years, to more than 9.1 percent.
Attention now turns to the next monetary meeting on September 20-21, when another sharp interest rate hike by half or even three-quarters of a percentage point will be proposed.
“It is unlikely that the Jackson Hole conference will carry real news regarding 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 per cent, meaning they are close to the so-called “neutral” level that neither stimulates nor slows the economy, which is assessed between 2 and 3 per cent.
Jonathan Millar, an economist at Barclays, notes that Jerome Powell “will seek in his speech to highlight the potential shift in monetary policy in the future, one of the things they want to communicate is that they continue to focus very strongly on price stability problems.”
Mazen Issa, an exchange specialist at TD Securities, expects Jackson Hole to “be very important to highlight” the theory of maintaining high rates, despite the economic slowdown.
And US GDP actually shrunk in the first two quarters of the year, in keeping with the classic definition of a recession.
But economists promise that this is not the case today in the United States, especially due to the solidity of the labor market, which returned in July to the pre-epidemic level, where 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 an early tightening of fiscal policy. 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 the agency, points out that “there should be a lot of discussion regarding whether there is significant damage to credibility”, in light of the miscalculation of the trajectory of inflation, and regarding “what can be done to fix it.”
Financial market experts expected the inflation rate in the euro area to rise significantly from the level targeted by the European Central Bank, which is 2 percent.
According to the survey conducted by the German “ZEW” Institute for Economic Studies, most financial market experts are less optimistic regarding the prospects for consumer prices in the European single currency area, which includes 19 countries of the European Union, compared to the Central Bank’s estimates that showed that the inflation rate It will fall back to just over 2 percent through 2024.
“Most analysts expect the inflation rate in the euro area this year to reach 7.5 percent, and then decline to 4.5 percent next year and 3 percent in the following year,” the Bloomberg news agency quoted the institute’s statement as saying.
Most analysts believe that the prices of energy, crops and raw materials are the main reason behind adjusting their expectations of the inflation rate in the European single currency area, and 43 percent of experts believe that the monetary policy of the European Central Bank is one of the reasons for increasing inflationary pressures.
Martins Kazaks, a member of the European Central Bank’s Board of Governors, had said a few days ago, that “the bank will continue to increase interest rates to curb the rise in the inflation rate in the euro area.”
“At the moment, what we are seeing is that the inflation rate is unacceptably high,” he added.
He continued, “Initially reducing financial support programs, and in the past few months we have raised interest rates by large percentages, and we will continue to increase interest rates in order not to allow inflation to become entrenched.”
Kazaks, who is also the governor of the Latvian Central Bank, stressed that it would be more painful to allow the high rate of inflation to continue, “and in order to combat inflation we must also adopt new fiscal and structural policies.”
He pointed out that inflation in his country has reached more than 20 percent, stressing that monetary policy has already become tighter since last December.
In Austria, final data from the Statistical Office showed consumer price inflation higher than first estimated in July.
Consumer prices rose 9.3 percent year-on-year in July, following an 8.7 percent increase in June, and inflation in the initial estimate was 9.2 percent.
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