As they await Jerome Powell’s speech at the Jackson Hole symposium on Friday morning, investors are bracing for a prolonged period of stronger inflationary pressures.
to a 16-year high, investors aren’t waiting until Friday morning when US central bank boss Jerome Powell will outline his view of the US economy at this year’s Jackson Hole conference.
They know that US central bank bosses have tended to use their Jackson Hole addresses to send a new message to markets, or to signal shifts in their approaches.Last year, for instance, Powell rattled financial markets with a brief but brutal speech in which he vowed to conquer inflation regardless of the economic pain inflicted on households and businesses. Powell referred to these as the “unfortunate costs of reducing inflation”.
Like most central bankers, Powell is deeply aware that the closer interest rates move to the optimal level, the greater the risk of policy error – of pushing interest rates too high, or else keeping monetary policy too loose. At the same time, Powell will also be wary of sounding optimistic on inflation because it could trigger a major market rally – sending stocks higher and pushing bond yields lower. The risk is that any premature easing of financial conditions could fuel economic growth and reignite inflationary pressures.
Costs will inevitably rise as companies rework their global supply chains, costs will climb, causing inflationary pressures to become entrenched.
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