Analysts are continuing to over-estimate the strength of global economic data, but this isn’t keeping central banks from sounding hawkish or actually being hawkish. For the US, the two great pillars of monetary policy aren’t raising new alarms: inflation isn’t running away and employment growth appears to be in constructive recovery.
The Global Economy
The most pressing question for Jerome Powell’s speech to the annual Jackson Hole Forum on Friday was whether he would unmistakably signal the start of tapering. Maybe unmistakable was aiming too high but some hints were definitely there. High rates of inflation have led a rising number of Fed officials to call for tapering, though here Powell was less than hawkish, saying trimmed mean measures (which throw out highs and lows) indicate that the underlying trend is closer to the Fed’s two percent target, not the 4.2 percent level that the Fed’s main inflation guage, the PCE price index, is currently running at.
When it comes to employment, Powell was more direct, pointing to “clear progress” though he warned that maximum employment is still a “considerable” ways off. In sum, it would probably take an unexpectedly weak August employment report or an exogenous event (sudden economic disaster) to kill the possibility of a tapering move at the September 21-22 FOMC. But quantitative easing is of course the mysterious half of Fed policy, the more direct and easily communicated monetary tool is the old-fashioned policy rate which Powell stressed — unmistakably — is not ready to be lifted any time soon.
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