Monetary policy|Stock prices rose rapidly on Friday after Governor Jerome Powell announced the likely prospects of a rate cut by the US Federal Reserve.
The summary is made by artificial intelligence and checked by a human.
Three of the world’s leading central banks announced interest rate cuts at the Jackson Hole conference.
The policy of the US central bank gives the opportunity for others to follow suit.
The governors of the ECB indicated that they support another interest rate cut in September.
Lowering interest rates depends on new information, the development of the outlook and the risk balance.
Three the world’s leading central banks signaled on Friday that they are all now firmly on their way to lower key interest rates or to continue their interest rate cuts that have already started in the coming months.
In addition to the US central bank, similar statements were heard from, among others, the governors of the European Central Bank (ECB), the governor of the Bank of England and China.
The policies of central bank leaders were heard at the annual three-day Jackson Hole conference in the US state of Wyoming, where central bankers from different countries discuss the state of the world economy.
News agency Bloomberg I estimate according to the guidelines given by the leaders of the three central banks meant that the era of high interest rates is over and that interest rates will continue to fall in the coming months.
It would also mean that the global economy would finally be getting rid of the inflationary pressure after the coronavirus pandemic.
of the United States the head of the central bank, the Federal Reserve (Fed). Jerome Powell hinted on Friday about the start of interest rate reductions in September.
Powell’s speech after, stock prices in the United States rose on a broad front.
The world’s most followed stock index S&P 500 and the industrial index Dow jones ended on Friday 1.1 percent higher than Thursday’s closing price.
The technology index Nasdaq rose 1.5 percent.
The policy of the US central bank gives the central banks of many other countries the opportunity to follow suit with their own interest rate cuts.
Finns In the last few days, even mortgage debtors have noticed that the market believes more and more every day in a decrease in interest rates, when, for example, the 12-month euribor has been decreasing.
From Euromaist, the Governor of the Bank of Finland Olli RehnLatvia Mārtiņš KazākCroatia Boris Vujcic like Portugal’s Mário Centeno too indicated that they would support another rate cut by the ECB next month.
The ECB lowered its interest rate for the first time in five years in June. The interest rate was reduced by 0.25 percentage points to 3.75 percent.
Rehn’s According to the estimate given at the Jackson Hole conference, bringing inflation under control in the euro area is on track. At the same time, he warned that growth prospects in Europe and especially in industry are quite subdued.
“This encourages the interest rate to be lowered in September.”
According to the Governor of the Central Bank of Portugal, Mário Centeno, the ECB’s decision to ease monetary policy should even be easy when looking at recent inflation and growth data.
According to Bloomberg, there was some kind of consensus among the ECB staff at the meeting that, in addition to September, interest rates would be lowered a second time this year if inflation develops according to the central bank’s plans.
In this case, inflation in the euro area would be brought to the central bank’s goal of two percent in the second half of 2025.
On Saturday one member of the ECB Council, Governor of the Austrian National Bank Robert Holzmann warned, however, that the ECB may not lower interest rates next month, even though many of his colleagues signaled that.
“As always, I will keep my position open until the decision day comes, and we have received different statistics,” Holzmann, known as a supporter of hard-line monetary policy, told Bloomberg in Jackson Hole.
“I wouldn’t say it’s a foregone conclusion – although many of my colleagues think so,” he added.
In the euro area growth has been subdued in the early months of the second half of the year.
The increase in unemployment worries central bankers in the euro area as well, even though the ECB’s task is to reach the inflation target.
On the other hand, it was generally concluded from Powell’s speech that in terms of the continuation of interest rate cuts in the United States, how employment in the country develops is key.
“We are doing everything we can to support a strong labor market while moving toward price stability,” Powell said in his speech.
In a recent economist survey by Bloomberg, the respondents estimated that unemployment in the United States would rise to 4.4 percent at the end of the year. Such a rise in unemployment may encourage the Fed to lower interest rates faster.
Although the will and direction of the central bankers is clear, the development of employment and the uncertainty caused by the speed of growth as well as the risks caused by geopolitical tensions will probably keep the interest rate market restless.
In Friday’s speeches, neither Powell nor the other central bankers gave more detailed instructions on how quickly interest rates will be lowered in the coming months.
English central bank governor Andrew Bailey said in his previously announced speech that he was open to future interest rate cuts. The central banks of China, Canada and New Zealand are also easing their monetary policy.
Among the major economies, Japan is the only country that is tightening monetary policy.
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