No monetary inflection expected tonight, but confirmation in a more dovey tone over the long term. Elements favorable to a “weak” dollar. This has also weakened in the days preceding the meeting. The Fed will present its economic forecasts and will be cautious for this last meeting before the presidential election.
The Fed in line with Jackson Hole… but there will be the new forecasts | Photo credits: shutterstock United States Federal Reserve
The US Federal Reserve has been meeting since yesterday. It will announce its monetary policy decision this evening. It will be unchanged. A different outcome would be a surprise to strategists. On the other hand, the intervention of its president Jerome Powell during the press conference which will follow will be of great interest. During the Jackson Hole symposium, the boss of the Fed announced that in the future it would tolerate inflation that was long above the target of 2% after a long period also below this same level. The message was clear: the central bank wants in the future to adopt a more flexible monetary policy than in the past. Interest rates will therefore take longer to rise than in previous cycles. Jay Powell should thus reiterate his remarks on monetary policy but, in the general opinion of economists, not more.
The strategists of Banque Postale AM outline these new objectives:
- « An average inflation target: if inflation has been below 2% for a while, the Fed will let it be above for another time, for the sake of ‘compensation’ ;
- The search for a maximum participation rate of the active population, even if the unemployment rate appears to be very low;
- Financial stability is a necessary condition for achieving price and employment targets ».
This monetary policy committee is the money before the presidential election on November 3. The Fed will also deliver its new economic forecasts until 2023! This distant horizon will make it possible to perceive the vision of the crisis that the monetary institution has. And, especially what profile of recovery its members retain: in V, in square root, and W, etc …
Other banks at work
Other central banks will meet by the end of the week, including the Bank of England and its Japanese counterpart. Both should also adopt the the state. The first faces a strong economic shock, complicated by a political crisis between the British government and representatives of the European Union over Brexit. Last week, Prime Minister Boris Johnson had his government pass a bill violating elements of the divorce agreement signed last year between the Old Continent and its own parliament. This text is even criticized by representatives of the Scottish and Wales executives. Scotland is putting its referendum project back on the table to gain independence from the United Kingdom and, why not, join the European Union! All of these are unfavorable to the pound sterling. Its decline, however, makes it possible to ease monetary conditions without changing interest rates or increasing asset purchases by the central bank.
The Bank of Japan has also had to face political uncertainty: the replacement of its Prime Minister, Shinzo Abe, who has resigned for health reasons. The tensions were less than in the case of Brexit, as political continuity was imposed in Japan. Yoshihide Suga was appointed on Wednesday by the Lower House of the Japanese Parliament. He was guaranteed to get the job on Monday after being elected head of the Liberal Democratic Party (PLD). In recent years, he was the general secretary of the Abe government, and therefore favorable to the prosecution of the Abenomics. There can be no better continuity.