Powell really had his Volcker moment last year at Jacksonhole, but it was quite a damp affair this year. Powell’s words lacked the drama associated with previous speeches.
In remarks delivered at the central bank conference in Jackson Hole, Wyoming, Powell said inflation was still too high even with recent favourable readings, and that the U.S. central bank has substantial ground to cover to regain price stability. So they are clearly keeping door open for more rate hikes.
But at the same time, Powell noted that economic uncertainty called for “agile” monetary policy making, and that the Fed will proceed “carefully” when deciding its next policy move.
There was little bit for every one be it bull or a bear as Powell gave quite a blaanced remark.
But other FED members had differing views on the course the CB should take, but again depending on upcoming inflation reports.
ECB
ECB policymakers are increasingly concerned about deteriorating growth prospects and momentum for a pause in its rate hikes is building, But Lagarde did not deviate from her known cautious remarks and there was no hint of dovishness, hence EURO yields and the EURUSD recovered their losses.
BANK OF JAPAN
But message from BOJ Governor Ueda was decidedly dovish as he said Underlying inflation in Japan remains “a bit below” the Bank of Japan’s 2 per cent target, and as a result the bank will maintain the current approach to monetary policy. He even expected inflation to decline from the current levels.
BANK OF ENGLAND
Interest rates in Britain might have to stay high “for some time yet,” Bank of England Deputy Governor Ben Broadbent said on Saturday, as the central bank seeks to curb the highest inflation rate among the world’s big rich economies. Broadbent said in a speech that the knock-on effects of the surge in prices – such as pressure on employers to push up wages, which has led to record growth in pay – were unlikely to fade away as rapidly as they emerged.
As can be seen most Central Bankers were non-committal about policy move going forward and decidedly data-dependent.
CURRENCY IMPLICATION – no clear influence for the Dollar from the above statements. If anything, one could say Japanese Yen would weaken more, which did happen as it touched a147.45 yesterday from 145.75 seen on Friday.
It looks like even the market wants to see more data to confirm US economy’s relative resilience and how the yields react. Looking at some of the forward looking indicators like M2 declining, consumer confidence dropping, job openings falling and increasing credit card access by consumers, one could say that slowdown in the largest economy may just be starting. If it does, it boils down to whether it is a severe slowdown or still holds better than others.
Eventually, Bond market will give us the direction for the Dollar which looks slightly on the bullish side (yields to drop).