It’s been an (almost) immutable ritual since 1982. At the end of the summer, central bankers meet in Jackson Hole, a valley nestled between the Grand Teton mountains, in Wyoming, for their big annual get-together. After two years of Covid, the 2022 vintage, which begins this Thursday August 25, will have a special flavor. Not only because the lull on the front of the pandemic allows them to meet physically, following two virtual editions in 2020 and 2021. But also because the big moneymakers of the planet are all facing a major challenge: how to calm the mad inflation that has spread for months in the economy and seems not to want to stop?
A nightmarish scenario that the central bankers had by no means anticipated last year, during their last high mass. The waltz of labels had already begun. Demand, boosted by stimulus measures, and supply, constrained by bottlenecks, had become misaligned, and were already causing pressure on prices. However, the great fundraisers then all assured him in chorus, inflation would only be temporary, and there was no urgency to get out the fire hoses. A year later, the situation has clearly changed: rising prices have become entrenched, and the conflict between Russia andUkraine added fuel to the fire. In the United States, annual inflation certainly marked time in July, at 8.5%, but the progression is still stratospheric. In the euro zone, it accelerated further and reached a historic high point, at 8.9% over one year. In the United Kingdom, the double-digit mark has even been crossed: the annual rise in prices has rocketed to 10.1%, and some analysts are predicting a peak of more than 18% for our neighbors across the Channel. 2023…
The risk of a “hard landing”
Faced with this surge, central bankers must engage in a delicate exercise, which requires skill. They have certainly all started to fight once morest inflationary pressures, by raising their key rates, and will certainly continue their efforts to strangle demand a little more. But without pushing too hard on the brake pedal, so as not to tip the economy into recession… Two complicated objectives to pursue simultaneously, all the more so in the current conditions. “With the series of accumulated shocks and the uncertainties that hang over the global economy today, the situation is very difficult to manage for central bankers”, analyzes Sebastian Paris Horvitz, director of research at La Banque Postale Asset Management.
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While waiting for the speech of the boss of the FED Jerome Powell, which will take place on Friday, the markets are holding their breath. “This moment is all the more important since most central banks have abandoned ‘forward guidance’, that is to say advance communication, and now act from meeting to meeting according to the data”, estimates Samy Chaar , chief economist at Lombard Odier. If the head of the American central bank should not make a major announcement, each of his words will be peeled to make predictions on the direction that will be chosen for the coming months… Will he rather be a “hawk” , favoring the fight once morest inflation, or on the contrary a “dove”, more accommodating for an American economy which has already experienced two consecutive quarters of contraction in gross domestic product? “There will of course be rate hikes to come, but the whole question is to know at what pace, to avoid the “hard landing” [NDLR : atterrissage brutal]“, judge Julien Pinter, researcher in monetary economics and member of BSI Economics.
Faced with this dilemma, the planet’s major fundraisers are all the more helpless as many cards have been reshuffled on the inflation front. “Macroeconomic tools that help to understand it, like the Phillips curve, are no longer relevant,” describes Sebastian Paris Horvitz. Above all, following decades of low inflation, the current episode might, beyond the economic situation, mark the beginning of a period of much more vigorous price increases. Is the 2% inflation target still relevant in the world following? In the corridors of Jackson Hole, there is no doubt that this question will agitate the discussions.
Opinions
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