Why does the Fed continue to be a glutton for punishment, repeatedly announcing for over a year that it is going to raise interest rates, then having to put the decision on hold? Yet again it has announced it will have to hike rates before end-year, possibly twice, and perhaps, once more, it will have to back down.
At Jackson Hole, Janet Yellen dwelt extensively on the challenges raised by low neutral rates, recognizing the need to broaden the unconventional toolkit for compensating for the subdued impact rate cuts might have in future. By hinting the Fed should reinforce its weaponry, just in case there is an unexpected and most unlikely bout of recession, Janet Yellen is sending the wrong message.
The reality being faced in the US and abroad is that the current world order has failed to deliver its promises.
Stock market analysts have turned the annual central bankers’ meeting in Jackson Hole into a boiling pot of speculation regarding what message Fed Chair Janet Yellen will transmit. The markets are not expecting a rate hike in September, but are hoping for some guidance from Yellen’s speech today about how she sees the US economy, the key factor which will determine whether there will be a rate move before year-end.
In the good old days, financial and economic observers used to worship Alan Greenspan’s deliveries as if they were Moses’ Tables of the Law. Many even earned their living interpreting his messages. This has no longer been the case since the first moment Janet Yellen took office. Most acknowledge that reading the Fed minutes is tantamount to a sheer waste of time. What we want to know, and the sooner the better, is the degree of commitment the Fed will demonstrate in hiking rates and reducing the liquidity glut.
The main US stock indices (S&P 500 and the Nasdaq) are at record highs while the European bourses have lost over 10% in the year to date. And that’s despite the fact that they recovered almost all of their ‘Brexit’ losses in July. Such a disparate performance is not because US corporate profits have been better, as you might expect, but is due to other factors associated with more solid economic growth, a healthy jobs market and inflation-related gains.
BBVA Research | The demise of the branch has been prophesised for decades, yet it still remains a crucial access point for bank services, valued by most bank customers. However, the question about the future of retail branches looms large as mobile and online banking are becoming ubiquitous, most routine retail banking services that do not involve cash are becoming available remotely, and as customers are ever more comfortable with the new technologies for accessing them.
On the eve of the Jackson Hole Fed gathering, the San Francisco Reserve Bank Chairman, John Williams, has launched an enlightening debate on the challenge raised by protracted natural interest rates. The so-called r-star would rank now close to zero in the US and below that threshold in the Eurozone.
Some accounting data from US companies offers an interesting reading: there is no doubt that the behaviour of listed companies has changed with the crisis. But what is even more important is that there was a structural change quite a bit before that. US companies are now increasingly less focused on investment in tangible capital and are quickly moving towards capital which is more intangible and/or financial.
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.