At the Jackson Hole central bankers’ conference in late August, Fed Chairman Jerome Powell delivered the very simple message that the fed it would continue to tighten its monetary policy until “the job is done”, that is, until inflation returns to a 2% trajectory. This had pushed equity markets lower and long rates higher. Fifteen days later and a few days after the FOMC, consumer prices once again surprised to the upside.
Despite the sharp fall in gasoline prices in the United States during the summer, inflation for the month of August stood at +8.3% year-on-year and, therefore, still close to its highest levels since the beginning of the 1980s. There, too, the impact on the market had been very strong with a drop in equity markets and a sharp rise in long-term rates. The interpretation was that inflation would likely stay high for longer than expected, requiring policy rates to stay high for longer than expected.
During the meeting of its monetary policy committee on September 21, the Fed insisted on demonstrating once again its determination in the fight against high inflation, “whatever it takes”. It raised its federal funds target range by 0.75 percentage point to 3.00/3.25%. And for most of his press conference, Jerome Powell kept the tone of the Jackson Hole conference: he also started the (…)
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