In his first press conference, Jerome Powell baffled both the experts and the markets. After reading the hawkish introductory statement, he defused all fears for a harsh and swift monetary tightening.
US Fed rates
Jerome Powell is bound to have a crash landing in the Federal Reserve. From the very beginning of his mandate, pressure is mounting on him to raise rates. An unpalatable choice for someone who hoped to follow Janet Yellen’s wait-and-see stance for as long as he could.
The latest set of September PMIs published yesterday showed that global economic growth momentum will remain very strong until year end, with the US, Europe and Japan set for even higher growth in Q4 2017 and only a minor cooling of economic growth in China. This bodes well for a continuation of US rate normalisation in December 2017.
J. L. M.Campuzano (Spanish Banking Association) | During one of the conferences at last week’s Jackson Hole meeting, ECB council member Benoit Coeure analysed the extreme monetary measures taken by the ECB (in reality by all the main central banks) during the crisis. His opinion was that the neutral interest rate equilibrium is now very low (the product of a combination of low potential growth and low inflation expectations) which explains the remainder of the exceptional measures implemented.
J. L. M.Campuzano (Spanish Banking Association) | Fed deputy chairman Fisher said last Tuesday that any future decision on interest rates will depend, in the end, on the data. The market is now awaiting the US August jobs figures, due out tomorrow. This will be the key indicator anticipating a September rate hike. They say that more than 150,000 new jobs will be a sufficient trigger for the Fed to take its decision this month. And the necessary condition? That the rest
The minutes of the FOMC’s policy meeting July 26-27 showed voting members were split over whether to raise US rates soon. The majority of the committee believe more macro data is needed before hiking rates, but some expect a move will be needed sooner rather than later.
Better placed observers, such as the Financial Times, bet this week’s FOMC meeting should serve as a test of its members’ mood regarding the planned increase in US rates. Janet Yellen lacks the authority her predecessors commanded and wants to make sure this critical decision garners full support.