InvestorQ : What was the gist of the statement made by Jerome Powell at Jackson Hole speech?
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What was the gist of the statement made by Jerome Powell at Jackson Hole speech?

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2 months ago
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While investors can complain that the policy was too hawkish, one cannot argue about the clarity in his message. Powell has not left anybody in doubt as to what the Fed would do. In fact, even before the address started, the Jerome Powell’s speech at Jackson Hole Symposium was already anticipated to be hawkish and contain an anti-inflation bias. However, what surprised the markets was the aggression of the Fed to contain inflation and that had a negative impact on equity and the bond markets.

Jackson has been a melting point for idea on macroeconomics for the last 44 years since 1978, While the symposium has been essentially about global central bank heads getting together for a quiet discussion, it has gone much beyond that of late. It also gets some of the leading thinkers and policymakers sharing the stage. Jackson Hole has been the venue for important policy shifts and this includes the long term monetary approach 3 years back. This meeting also sets the tone for how the Fed and other central banks cooperate.

If there is one thing you can say about Powell’s speech, it was that it was absolutely unambiguous. Fed minced no words to convey the message that they were committed to price stability above all else, at least for now. The Fed would not relent till inflation was decisively moving towards 2%. It also underlined that Fed would hike rates by another 75 bps in its next meeting in September. Powell also dwelt at length on toning down inflation expectations. If people expect inflation to remain high, actual inflation does remain high.

Powell clarified that they would not give too much credence to short term data. However, they also underscored that going ahead they would be medium term data driven and refused to commit to the quantum of rate hike. It now looks like the terminal rate for the Fed funds would be in the range of 3.75% to 4.00% and most of it would be front loaded in 2022 itself. In a nutshell, the Fed chairman, Jerome Powell, has said in no uncertain terms that the Fed was willing to focus on price stability even at the risk of GDP growth.

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