The Jackson Hole Symposium in the United States has established itself over the years as an essential time during the summer to glean information on monetary policy. In fact, every August, in this fashionable American seaside resort of Wyoming, all that counts influential figures in the economic, political and financial fields gather. Central bankers, economists, politicians, senior officials and academics come together for a little over two days of meetings, seminars and interventions.
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 then Fed boss. 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 that of last year, will be a little 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. As in 2007, there will obviously be no question of monetary easing but of the start of normalization.
« Tapering »
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His intervention will be all the more followed as investors are in expectation on 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 resolved?
Jay Powell will speak Friday at 10 a.m. EST, or 4 p.m. in Paris. The entire calendar will be published the day before at 7 p.m.
Until recent days, economists had expected a tapering early 2022. The speech of the head of the institution at the press conference of the last monetary policy committee was surprised by its accommodating approach, ” indicating that it was now necessary to focus on improving employment and that inflation could go (still) higher and last a little longer than expected (while remaining transitory however) “, Recently underlined John Plassard, investment specialist at Mirabaud Securities. “ Investors (…) are now wondering what economic data we should trust to try to ‘time’ the next monetary normalization across the Atlantic », Continues the expert.
But since then, public interventions by other Fed members have given the opposite sentiment. The publication of the minutes of the monetary policy committee, last Wednesday, set fire to the powders. Investors have realized that the decision to slow down quantitative easing (QE) could come much earlier than expected: as early as the fourth quarter of this year. Financial markets immediately lost height. This beginning of the week, a few confidence surveys less well oriented than expected have allowed the indices to recover.
The unemployment rate, a “key spur” for the Fed
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Powell must thus speak 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 that the Federal Reserve will procrastinate a few more months. The president of the central bank will be cautious. As always, it will take into account the recent behavior of the financial markets, an important variable across the Atlantic because of its significant household wealth effect.
For Thomas Costerg, Senior US Economist at Pictet Wealth Management, “ the institution seems determined to downsize on quantitative easing ». « The Delta variant does not appear to upset the Federal Reserve’s already well-established plans to start reducing purchases by the end of the year, as communicated in the last minutes and also at the press conference in the month of July “. The expert explains: “ The Federal Reserve’s key macro spur is the unemployment rate, which fell sharply to just 5.4% in July and could continue to decline sharply in the coming months, especially with the withdrawal of extraordinary unemployment benefits ( in September at federal level). Inflation is high because of bottlenecks in production chains and the peak in demand for certain services, but the Federal Reserve tends to sideline inflation by deeming it mainly ‘temporary’ ».
Indeed, the choices of the central bank also have implications in terms of financial stability. ” We must not neglect the internal debate at the Fed on the fear of a dangerous inflation of asset prices and in particular of houses », Explains Thomas Costerg. ” Home prices soared 23% year-on-year in June 2021 in particular, a figure that caused a stir, especially in the regional branches of the Federal Reserve ».
The consensus of economists is therefore rather that of a procrastination of the central bank to announce its intentions in September or November, once Congress has definitively pronounced itself on the investment plan in infrastructure of 1.2 trillion dollars. Jerome Powell also has a very personal additional uncertainty: the renewal of his mandate. President Joe Biden is due to vote in early September, around the 6th, Labor Day.
15 billion reduction?
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Whatever the date of its onset, a tapering will not be a monetary hardening but a simple withdrawal of accommodation. Monetary policy is no longer suited to an expansion, admittedly 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 related 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 withdrawn by the Fed.
Above all, there will be no key rate hikes in the coming months. ” Most of the participants [du comité de fin juillet] agree that decisions on QE and the key rate depend on different criteria. If the tapering starts a little earlier than expected so far (end of 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 is irrelevant at the moment. It will be a serious issue in 2022, not before. Given the normalization sequence (stopping QE before raising rates), the window for a first rate hike would not open in the most aggressive scenario until the second half of 2022, but more likely in 2023. ».
The date of 2023 is therefore consensual. And the rate hikes ” could well stop below the level of inflation, i.e. below 2%, and therefore ultimately remain symbolic Says the economist from Pictet Wealth Management. The markets therefore have no reason to worry, except to consider that the end of the monetary escalation is indeed penalizing for the valuation of assets.
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