The Jackson Hole symposium in the United States has established itself over the years as an essential moment during the summer period to glean monetary policy information. In fact, every August, in this fashionable American seaside resort of Wyoming, come together all that counts influential figures in the economic, political and financial fields. Central bankers, economists, politicians, senior civil servants and academics rub shoulders during just over two days of meetings, colloquia and speeches.
The most anticipated speeches are obviously those of the President of the Federal Reserve, then of his European, British and Japanese counterparts, when they are obviously present. This is not the case every year. Everyone remembers the meeting of August 31, 2007, in the midst of the subprime crisis, and the intervention of the boss of the Fed at the time. Ben Bernanke had announced an unprecedented cycle of key rate cuts. They will decrease, in fact, from 5.25% on September 18 to 0.25% in December 2008.
The 2021 edition, like last year’s, will be somewhat disrupted by the Covid-19 pandemic. It will therefore be held in video on August 27. This will limit informal exchanges, in the corridors, but will not prevent the key event from taking place: the intervention of Jerome Powell, the current president of the American central bank. It will obviously not be a question of monetary easing, as in 2007, but of the start of normalization.
« Tapering »
His intervention will be all the more followed as investors are waiting for the next decisions of the Fed. Will it decide to reduce its purchases of financial assets in the coming weeks? Or, on the contrary, worried about the resumption of the Covid-19 pandemic via the delta variant, will it prefer to wait until this uncertainty is lifted?
Jay Powell will speak Friday at 10 a.m. EST, or 4 p.m. in Paris. The entire schedule will be published the day before at 7 p.m.
Until recently, economists had been counting on a tapering beginning of 2022. The speech of the head of the institution during the press conference of the last monetary policy committee had surprised by its accommodating approach, “ indicating that the focus should now be on improving employment and that inflation could go (even) higher and last a little longer than expected (while remaining transitory however) “, underlined recently John Plassard, specialist in investment of the company Mirabaud Securities. “ Investors (…) are now wondering what economic data they will have to rely on to try to ‘timer’ the next monetary normalization across the Atlantic “, continues the expert.
But since then, the public interventions of other members of the Fed have given a contrary feeling. The publication of the minutes of the monetary policy committee, last Wednesday, set fire to the powder. Investors have realized that the decision to slow down Quantitative Easing (QE) could come much sooner than expected: as early as the fourth quarter of this year. The financial markets lost momentum immediately. At the start of the week, a few confidence surveys that were less well oriented than expected enabled the indices to recover.
The unemployment rate, “key spur” for the Fed
Powell must thus express himself on the economic situation of the United States. There is no doubt that his words will be interpreted by the operators. Too confident and they will deduce that the tapering is imminent. Too cautious and they will think the Federal Reserve will stall for a few more months. The central bank president will be cautious. As always, it will take into account the recent behavior of the financial markets, an important variable across the Atlantic due to its significant household wealth effect.
For Thomas Costerg, Senior US Economist at Pictet Wealth Management, “ the institution seems determined to scale back on quantitative easing ». « The Delta variant does not seem to upset the already well-established plans of the Federal Reserve to start reducing purchases by the end of the year, as communicated in the last minutes and also at the press conference of the month of July “. The expert explains: The key sting for the Federal Reserve on a macro level is the unemployment rate, which fell sharply to just 5.4% in July and could continue to fall sharply in the coming months, especially with the withdrawal of extraordinary unemployment benefits ( in September at the federal level). Inflation is high due to bottlenecks in production chains and peak demand for certain services, but the Federal Reserve tends to push inflation into the background, deeming it mostly ‘temporary’ ».
Indeed, the choices of the central bank also have implications in terms of financial stability. ” We must not overlook the internal debate at the Fed on the fear of a dangerous inflation of the price of assets and in particular of houses “, explains Thomas Costerg. ” House prices soared 23% year-on-year in June 2021 in particular, a figure that caused a stir, particularly in the regional branches of the Federal Reserve. ».
The consensus of economists is therefore rather that of a temporization of the central bank to announce its intentions in September or November, once Congress has definitively pronounced on the plan for investment in infrastructure of 1,200 billion dollars. Jerome Powell also has a very personal additional uncertainty: the renewal of his mandate. President Joe Biden is due to rule in early September, around the 6th, Labor Day.
Reduction of 15 billion?
Regardless of its start date, a tapering will not be a monetary tightening but a simple withdrawal of accommodation. Monetary policy is no longer adapted to an expansion, certainly dependent on the pandemic, but which is now robust. QE could thus take the form of a reduction in purchases of 15 billion dollars halfway between the twenty demanded by the “hawks” and the ten tolerated by the “doves”. A small gesture reported to the 120 billion spent each month. But the Fed is already withdrawing a lot more liquidity than adding it to the markets, via its reverse repo operations. Every day, 1,000 billion are subtracted by the Fed.
Above all, there will be no key rate increases in the coming months. ” Most participants [du comité de fin juillet] agree that decisions on QE and on the policy rate depend on different criteria. If the tapering starts a little earlier than expected so far (late 2021 instead of 2022), this does not necessarily imply that the first rate hike will be earlier, nor that the cycle of hikes will be more aggressive », estimates Bruno Cavalier, chief economist of Oddo BHF. ” The debate on a possible rate hike does not take place for the moment. It will seriously arise in 2022, not before. Given the normalization sequence (stopping QE before raising rates), the window for a first rate hike would only open in the most aggressive scenario in the second half of 2022, but more likely in 2023 ».
The date of 2023 is therefore consensual. And the rate hikes could well and truly stop below the level of inflation, i.e. below 2%, and therefore ultimately remain symbolic “says the economist of Pictet Wealth Management. The markets therefore have no reason to worry, except to consider that the end of monetary overbidding is very penalizing for the valuation of assets.