Macro Insights Weekly: Jackson Hole takeaways: jobs and inflation


The Jackson Hole Economic Policy Symposium underscored cautious optimism about the near-term and sober thoughts on the myriad, looming long-term challenges.
Taimur Baig, Nathan Chow30 Aug 2021
  • If the Chair’s goal was to signal taper without causing any market tantrum, he was successful
  • But if the goal was the provide clear forward guidance, then the speech fell short
  • The Fed is on course to begin scaling back the blanket accommodating measures put in place
  • A 9-month taper window could be fleshed out over the next two months
  • We find it hard to see rate hike to follow in 2022; 2023 more likely
Photo credit: AFP Photo


Commentary: Jobs, inflation, monetary policy

Over the weekend, policymakers and academics gathered at Jackson Hole, Wyoming for an annual conference on monetary policy. This is where in 2005, then IMF research head Raghuram Rajan presented a warning about risk pooling in global markets. His prescient concerns played out just a couple of years later during the global financial crisis, giving the conference a substantial following thereafter. With US inflation running fairly hot at a time when the Federal Reserve continues to purchase US80bn of Treasuries and USD40bn of mortgage-backed securities every month, the question was if decisive signals about curtailing the programme will be presented during the course of the conference.

During a weekend of deliberations and presentations focused on the uneven economy, Chair Powell’s keynote speech, expressing that conditions for easing asset purchases have been met, commanded the headlines. The speech took stock of the policy challenges during the 17 months since the pandemic began, with a scorecard of achievement with respect to financial stability, consumer and business confidence, labour market, demand dynamic (strong durable goods demand, weak demand for services that require in-person interaction), and prices. From the perspective of the Chair, the strong rebound has been underpinned by the Fed’s support measures, and despite some rise in inflation due to transitory factors, long-term expectations have remained anchored, keeping financial conditions supremely favourable. While the labour market has plenty of room for improvement, from participation to wages, a clear message was conveyed with respect to inflation objectives being achieved.

This final point paves the way for asset purchase taper. At the same time, a lack of timeline or scale of taper leaves plenty of flexibility in the hands of the Fed. We think that as the pandemic peaks, the Fed would begin scaling back the blanket accommodating measures put in place on an emergency basis last year. A nine-month taper window could be fleshed out over the next two months, in our view. If there are signs of an exacerbation of the pandemic, then a more protracted path would follow, we are sure.

If the Chair’s goal was to signal taper without causing any market tantrum, he was successful. Market response was muted, with no hit to stocks or bonds. The fact that the Fed’s credibility remains high despite 5%+ headline and 4%+ PCE inflation is key to the market’s sense of ease, at least for the time being.

The hawks will remain worried that inflation and its determinants are running too hot; the doves will fret about resurging pandemic and softening growth. Looking across the opinion spectrum, we find it hard to see any rate hikes in 2022; 2023 is more likely.




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Taimur Baig, Ph.D. 泰穆爾 貝格, Ph.D.

Chief Economist - G3 & Asia 集團首席經濟學家 - G3 及亞洲
taimurbaig@dbs.com

Nathan Chow 周洪禮

Senior Economist/Strategist 策略師 - 中國及香港
nathanchow@dbs.com


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