In Jackson Hole, the Fed chairman remains firm on inflation

Stop or again? Federal Reserve (Fed) Chairman Jerome Powell gave a first element of response during his opening speech at the Jackson Hole (Wyoming) meetings, which leaves the door open to further interest rate hikes. end of the year. The high point of this high mass of central bankers, inevitably eagerly awaited by the markets, the speech of the boss of the Fed did not leave much room for doubt as to the determination of the institution to curb inflation. , one month before the next meeting of the monetary policy committee (FOMC).

“Admittedly, inflation has slowed since its peak but it remains too high. We are ready to raise interest rates further if necessary and intend to maintain a tight monetary policy until we are confident that inflation is on a sustainable path towards our target,” said Jerome Powell. . But getting there could require “a period of below-potential growth, as well as an easing of labor market conditions,” insisted Jerome Powell, who warns that “any indication of above-trend growth could block further progress on inflation and call for monetary tightening”.

For 18 months, the Fed has remained focused on its objective: to raise its rates quickly in order to prevent expectations of persistently high inflation from taking root, with significant risks for the economy at stake. As a result, since March 2022, the institution has increased its rates eleven times, to take them from a level close to zero to a range between 5.25% and 5.50%.

Consequence or not, inflation has taken the opposite path, with first a peak in June 2022, around 9% then a constant decline since, to return to 3% in June, according to the PCE index, the one favored by the Fed. The 2% inflation target is now in sight, but all analysts agree that this last step could be the most difficult.

On the side of the European Central Bank (ECB), whose President Christine Lagarde will also speak in Jackson Hole on Friday at the start of the afternoon, the question is essentially the same. Starting a little later, the ECB raised its rates for the first time in mid-July 2022, to chain eight increases since then and bring them to 3.75%, a record since the spring of 2001.

But the situation in the euro zone remains more complicated, with inflation slowing down slowly, still standing at 5.3% in July and above all a significant disparity between countries. The rise in prices fell back below the 2% target in Spain and Belgium, but was still much higher in Germany and France, and even above 10% in Slovakia.

On both sides of the Atlantic, the possibility of a break is being seriously considered. On the Fed side, Jerome Powell insists on the need to rely on economic data as the target gets closer. And opinions are varied among members of the Fed's Monetary Committee (FOMC). Some, like Austan Goolsbee of the Chicago Fed office, consider that the essentials have been done. Others, like Michelle Bowman, one of the governors, call on the contrary for the continuation of the rise.

But the macroeconomic data rather encourage central banks to continue their current monetary policy: despite a strong and rapid rise in rates, economies remain resilient, particularly in the United States, and unemployment low.

Enough to consider another rate hike in September from the side of the Fed? Not necessarily for the markets, which are still 86% (up from 80% before Friday's speech) pricing in another break at the Sept. 20 meeting, according to data from CME Group. In practice, the economic symposium must be interested in "Structural changes in the world economy", according to its displayed theme. But for the markets, any indication of the Fed's future decisions matters, as inflation approaches its target.