Wall Street only has eyes for the mountainous region of Jackson Hole, in the interior of Wyoming, in the United States, site of the meeting of the cream of central bankers and economists in the traditional meeting on monetary policy, this Thursday, 25, to Saturday, 27. From the symposium, which returns to face-to-face format for the first time since the covid-19 pandemic, clearer evidence is expected regarding the rise in interest rates in the main economies of the world. The expectation is that the Federal Reserve (Fed, the US central bank) reinforces its focus on controlling inflation even at the expense of the growth of the largest economy in the world.
The theme of this 45th edition of the event is “Reassessment of constraints on the economy and politics”. The most awaited moment is the speech by Fed President Jerome Powell, scheduled for this Friday, the 26th. Economists consulted by the Estadão/BroadcastGrupo Estado’s real-time news system, expect it to reiterate its focus on containing the escalation of inflation – which, despite the July truce, continues to press -, albeit at the cost of growth below its potential, under the even fear of recession.
Brazil will be represented by the director of International Affairs and Corporate Risk Management at the Central Bank (BC), Fernanda Guardado. BC president Roberto Campos Neto will not attend the meeting for reasons of agenda.
Wall Street expects Powell talk to be cautious
Among investors and analysts, anxiety about the Jackson Hole symposium is high. They are looking for signs of the process of tightening of financial conditions in the main economies, under the fear of recession in sight.
For Citi’s chief US economist Andrew Hollenhorst, there is a risk that Powell will have a more hawkish speech (keeping interest rates high). “We cannot say that there is certainty, but there is a risk,” Hollenhorst told Estadão/Broadcast. At the same time, he considers that Powell can wait for new data from the economy before deciding whether or not to continue raising interest rates.
Overall, Wall Street expects Powell to be cautious and avoid early celebrations after data from July suggested that the peak of US inflation may have been passed.
“The minutes of the July meeting gave a glimpse of what is likely to be an important topic of the symposium: managing the risks of declaring a premature victory over inflation”, reinforces the British bank Barclays, to clients.
Ahead of the next Federal Open Market Committee (FOMC) meeting in September, new data is expected from the US, including the behavior of prices and the labor market in August. Without them, Powell may prefer to be more restrained in his speech.
The bank Brown Brothers Harriman (BBH) assesses that, unlike in recent years, when the Fed used the symposium to suggest changes in its monetary policy, now the authority will not want to commit before the next meeting.
For the November meeting of the Fomc, the market remains divided. Most (54.5%) expect a third rise of 0.75 percentage point, while the odds of a smaller increase of 0.50 percentage point are at 45.5%, according to the CME Group platform.
In the view of Capital Economics’ chief US economist Andrew Hunter, the Fed should ease monetary tightening in the US, raising interest rates by 0.50 percentage point at the September meeting, to the range between 3.75% and 4.00% at the beginning of 2023.
In addition to the pace of interest rate hikes, Bank of America says it does not expect a change in the Fed’s stance in terms of a possible rate cut on the horizon. Powell, in the view of the Wall Street giant, should repeat the message that a restrictive policy is needed until there is “clear and convincing” evidence that US inflation will converge to the 2% target.
The information is from the newspaper. The State of São Paulo.
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