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  • Writer's pictureStephen H Akin

Ahoy Investors!

Updated: Sep 5, 2023

Federal Reserve Chairman Jerome Powells Jackson Hole Speech landed in our Wheelhouse!

photo of a sextant used in celestial navigation
"We are navigating by the stars under cloudy skies"

Powell Says: “We are navigating by the stars under cloudy skies,”.

Powell went on to say Fed policymakers would “proceed carefully as we decide whether to tighten further.”

“It is the Fed’s job to bring inflation down to our 2% goal, and we will do so,” Powell said. “We have tightened policy significantly over the past year.

Although inflation has moved down from its peak – a welcome development – it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”

photo of Chairman Powells PCE Chart
Price Indexes for Core PCE Goods and Services

Powell said the Fed was “attentive to signs that the economy may not be cooling as expected”, with consumer spending “especially robust” and the housing sector possibly rebounding.

The economy continues to grow above trend, Powell said, and if that continues, “it could put further progress on inflation at risk and could warrant further tightening of monetary policy”.

His remarks showed the Fed wrestling with conflicting signals from an economic picture where inflation has, by some readings, slowed a lot without much cost to the economy – a positive outcome, but one that has raised the possibility Fed policy is not restrictive enough to complete the job.

It was difficult, he said, to know with precision the degree to which the Fed’s current 5.25% to 5.5% benchmark interest rate had cleared the “neutral” rate of interest needed to slow the economy, and therefore hard to assess just where policy stands.


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Speech by Christine Lagarde, President of the ECB, at the annual Economic Policy Symposium "Structural Shifts in the Global Economy"

Jackson Hole, 25 August 2023

Over the past three years, people around the world have experienced an unprecedented series of shocks, albeit to varying degrees.

We have faced the pandemic, resulting in a partial shutdown of the global economy. We are confronting a war in Europe and a new geopolitical landscape, leading to profound changes in energy markets and trade patterns. And climate change is accelerating, compelling us to do all we can to decarbonise the economy.

One visible impact of these shifts has been the return of high inflation globally, which has caused anguish for many people. Central banks have responded by tightening monetary policy and, while progress is being made, the fight against inflation is not yet won.

But these shifts could also have profound longer-term implications. There are plausible scenarios where we could see a fundamental change in the nature of global economic interactions. In other words, we may be entering an age of shifts in economic relationships and breaks in established regularities. For policymakers with a stability mandate, this poses a significant challenge­.

We rely on past regularities to understand the distribution of shocks we are likely to face, how they will transmit through the economy, and how policies can best respond to them. But if we are in a new age, past regularities may no longer be a good guide for how the economy works.

So, how can we continue to ensure stability?

The challenge we face was well-captured by the philosopher Søren Kierkegaard, who said that “life can only be understood backwards; but it must be lived forwards”.

Since our policies operate with lags, we cannot wait for the parameters of this new environment to become entirely clear before we act. We have to form a view of the future and act in a forward-looking way. But we will only ever truly understand the effects of our decisions after the fact. So we will have to establish new frameworks geared towards robust policymaking under uncertainty.

Today, I will lay out the three main shifts characterising the current environment and how they could change the type of shocks we face and their transmission through the economy. I will then touch on the three key elements of robust policymaking in this setting: clarity, flexibility and humility.


Policymaking in an age of shifts and breaks
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BOJ's Ueda: Underlying inflation still a bit below target

Reuters August 26, 20232:51 PM EDT Updated a day ago

JACKSON HOLE, Wyoming, Aug 26 (Reuters) - Underlying inflation in Japan remains "a bit below" the Bank of Japan's 2% target, BOJ Governor Kazuo Ueda said at a Federal Reserve research symposium on Saturday, and as a result the bank will maintain the current approach to monetary policy.

"We think that underlying inflation is still a bit below our target," Ueda said. "This is why we are sticking with our current monetary easing framework."

Japan's core consumer inflation hit 3.1% in July, staying above the central bank's 2% inflation target for the 16th straight month, as companies continued to pass on higher costs to households.

Ueda said domestic demand was "still at a healthy trend" and business fixed-investment was "supported by record high profits."

Nevertheless, inflation "is expected to decline" from here, he said, with the underlying trend still less than the target.

The BOJ has said it needs to maintain ultra-low rates until it is clear that robust domestic demand and higher wages replace cost-push factors as key drivers of price gains, and keep inflation sustainably around its target.

Investors have been waiting for hints of when the BOJ may change its policy of yield curve control, under which the bank holds short-term interest rates at -0.1% and the 10-year bond yield around 0% as part of efforts to prop up growth and sustainably achieve its 2% inflation target. It also sets an allowance band of 50 basis point around the 10-year yield target. The BOJ nominally kept the band unchanged last month but said it would now allow the 10-year yield to rise to as much as 1.0%.

Reporting by Howard Schneider; Additional reporting by Leika Kihara in Tokyo; Editing by Andrea Ricci and Diane Craft


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