Warning Shots in the Dark
- 29 Agosto 2022 (5 min de lectura)
Key point:
- Uncertainty and volatility may prevail, but the “Jackson Hole 2022 spirit” is crystal clear: risks can’t be taken with persistent inflation and more tightening is needed. 2023 may be a different story though.
We found it striking that a lot of discussions in Jackson Hole focused on the inordinate level of uncertainty central banks are facing right now while the policy conclusions – “keeping at it” on the monetary tightening – were crystal-clear. This reflects the profound change in how central banks view the distribution of risks. With higher probability of inflation turning persistent, they feel compelled to act forcefully, even if the macro environment is unusually volatile. This is the symmetric approach to what prevailed during the “great moderation” when it is the deflation risk which was calling for decisive accommodative action.
The dataflow is getting more ambiguous though – in the US at least. Beyond the good news from the July consumer inflation print, import prices are now falling. Yet, the Fed remains focused on the labor market, and with wages still accelerating, Powell’s hawkish tone is justified. The prominence of the 1970s/1980s period in the Jackson Hole debates suggests the Fed is concerned about making a policy mistake. There may also be a message to the US government. After all, it’s the excess fiscal stimulus of 2020-2021 which explains a lot of the current core inflation shock, and the central bank may be tired of being accused of having failed to address the acceleration in consumer prices. The “original sin” of the 1970s Fed was in its failure to resist government pressure to accommodate its spendthrift proclivities. Now, if the labor market starts struggling decisively, the shelf-life of the 2022 “Jackson Hole spirit” may not be that long. But there is always some inertia in the policy stance. Even if the dataflow deteriorates, the Fed will continue hiking for the remainder of this year, and as we argued before the August break, the market was too impatient in pricing in a dovish pivot.
The ECB-speak at Jackson Hole was also on the hawkish side. Still, we detect quite some differences in the analysis of Isabel Schnabel and Francois Villeroy de Galhau. This may not matter much before 2023 though. For now, hawks and doves are united on the need to bring policy rates back to neutral territory.
Disclaimer
This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.
All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document.
Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.
Advertencia sobre riesgos
El valor de las inversiones y las rentas derivadas de ellas pueden disminuir o aumentar y es posible que los inversores no recuperen la cantidad invertida originalmente.