Week in a Glance: Jackson Hole, Powell & Monetary Policy Future

The main event of the past week was the speech of the head of the Fed, Jerome Powell, at the symposium in Jackson Hole. Common sense, comments by FRB presidents, economic data - all strongly indicated that Powell was using the site of the symposium to announce the beginning of a change in the vector of FRS monetary policy. The funny thing is that he +/- did it. But he did it in such a way that it was rather perceived not as a change in the vector, as the very continuation of the existing order of things. And if so, then cheap money will still be and you can continue to feast. Accordingly, the stock markets continued to churn out all-time highs.

But back to Powell. By and large, he repeated everything that he has been talking about for several months in a row: inflation is a temporary phenomenon, and if so, then the Fed does not need to make sudden movements - it will resolve itself. But ensuring economic recovery in the current realities is a more important priority for the Central Bank. Although at the same time Powell said that the US economy continues to move towards the goals of the Fed, which makes it possible to reduce the size of emergency programs adopted during the pandemic. But he did not name any parameters or dates.

Let us remind once again that the Fed is now playing a very delicate game, within which it is extremely important not to allow the collapse of price bubbles, but to ensure their more or less smooth deflation. In this context, Powell's performance can be considered ideal. He seemed to give a signal that monetary policy would tighten, but at the same time he did not give rise to even a hint of a panic wave. Although, again, based on the reaction of the markets, the situation in fact only worsened.

This week will be published data on the US labor market, which may well tip the scales in one direction or another. This refers to both the general decision to reduce the quantitative easing program and timing issues. Excellent data could provoke a decision on the reduction already at the upcoming FOMC meeting on September 22. But the weak, on the contrary, will show that Powell was right and should not count on an imminent tightening of monetary policy.