August tends to be a turbulent period. Ten years ago, when you drank form financial crisis, n president of Federal Reserve (Fed), Ben Bernanke, became conclave in Jackson Hole (Wyoming) on speaker to communicate with markets facing imminent collapse of financial system and try to reassure him. After you used him to explain plan that had Federal Reserve to revive economy. With Janet Yellen came calm. Now Jerome Powell, who came for first time as chairman of Fed at Jackson Hole, opens symposium with monetary policy close to achieving ir goal.
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The great challenge is twofold: not to commit strategic mistakes that you can regret and anticipate as far as possible to next change in economic cycle. Powell, at this time, not bats an eye when considering what is “appropriate” is to continue “moving forward” with rise in “gradual” interest rate. The economy, he says, “strengned” and you have reasons to think that it will continue to do.
The head of monetary authority defends validity of its strategy in spite of harsh criticism expressed during course of this summer by president Donald Trump. It is also aware of double risk. If rates rise too fast, he says, “cut off expansion.” If you are going too slow, he warns, “we will disrupt by overheating”. This uncertainty, he adds, to justify current course.
The Federal Reserve decided earlier this month to leave interest rates intact in a band between 1.75% and 2% (up to where he had climbed in June, with second rise in a year), although he noted to market that will upload m in September and possibly again in December. Anticipate three increments more along of 2019 and one in 2020 in a process of normalization that goes in parallel to reduction of assets that accumulated during crisis.
Donald Trump, like many activist organizations in field of work that met in parallel to summit of central bankers, want Fed to stop climbing types because, she says, which complicates ir growth plan. Came back to say this week. Jerome Powell, however, considered it necessary to go forward with plan to bring rates to a more normal level.
Grows debate
Robert Kaplan, president of Dallas Fed, is of opinion that it may raise rates three or four times in next nine months. At that time re could be a pause in normalisation process to analyze if price of money implies a drag on growth and employment. The latest survey published in June indicates up to six increments from now on in long term.
Esr George, president of Kansas City Fed, sees neutral rate between 2.5% and 3%, that’s why he defends two new increases in price of money this year. Projected growth will be about 3% for whole of 2018. But he believes that is a rate above potential. On contrary, if inflation accelerates and unemployment drops more, it would be necessary to take increase away.
minutes of August meeting reflects that re is an intense debate in this sense. The members are in agreement that we should take it a step furr next month, but some believe that soon it would be time to revisit strategy if escalation in dispute business makes ballast. Protectionism is a risk factor. You can also see signs of relaxation in home.
Calibrate
“We are on right path,” he insists Loretta Mester, Fed of Cleveland, “not prejuzgamos nothing to calibrate policy with progress of economy. “The current course is in line with objectives, that is why it is appropriate to raise rates gradually”. He also thinks that neutral rate is at 3%. James Bullard, Fed’s St. Louis, is more cautious. “I would stay where we are,” he says.
economists are following very closely how you progress curves of short-term interests and long rates. It is one of indicators that serve to predict a change in growth cycle. Powell anticipates that trend is towards a moderation in growth but do not see risk of a recession. Kaplan believes that strategy will allow curves do not cross.
A changing economy
The annual meeting of Jackson Hole, in natural reserve of Grand Teton, will serve this year to delve more deeply into analysis of factors in this expansion to keep inflation low and prevent wages to rise more rapidly, along with limited progress on side of productivity. Are three conditions that explain why developed economies continue to move forward by below-potential prior to crisis.
Among topics for discussion is to analyze greater market concentration in many industries may be affecting productivity and wages. Or how change in consumption trends for e-commerce causes that many companies have difficulties to raise prices. The Federal Reserve is thus to understand implications of a “changing economy”.
The monetary policy, in synsis, you must think of what is coming, to anticipate and to have tools to act. In past, Fed cut rates at ir discretion for righting situation. Now does not have that luxury, and it is argued that alternatives are available. Up to now managed to calm market by stating that rates would remain low for a long period and to base to buy debt.
Anor point to debate at Jackson Hole is related, precisely, with size of balance sheet of central banks and to what purpose it should serve. The third issue of interest is how monetary authorities should take into account conditions outside of ir borders when y define ir policies, and as certain decisions, looking to Turkey, can reverberate.
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