Jackson Hole: What to expect from Powell’s speech at one of the most important US monetary policy events of the year?

SAO PAULO – The market finds itself surrounded by numerous factors of uncertainty in 2021, but perhaps the most accompanied by the size of the US economy is the evolution of the US central bank’s monetary policy.

This Friday (27), Federal Reserve Chairman Jerome Powell will speak at the Jackson Hole symposium, and as Reuters news agency anticipated, he will have the difficult task of convincing investors to gradually cut back on monthly purchases. of $120 billion in bonds does not mean that the monetary authority will raise interest rates sooner than expected: sometime during 2023.

According to João Beck, an economist and partner at BRA, Powell’s speech in Jackson Hole gains special attention because he can anticipate details of the rhythm of the call “tapering“, which is this reduction in asset purchases. “That’s where all the spotlights will be,” he opines.

Bruno Komura, strategist at Ouro Preto Investimentos, analyzes that the market was scared by the tapering announced in the minutes of the last decision of the Federal Open Market Committee (Fomc), but the release of some economic data below expectations ended up being seen as positive as it could postpone the start of this reduction in stimulus.

“The market is expecting this to happen at the end of the year or the beginning of next year, but it is necessary to hear what will be said in Jackson Hole, because the message may be that the tapering it will happen in the last quarter.”

Komura understands that the Fed will also try to calm the market, warning that although the reduction of stimulus starts now, it is not automatic that this will translate into an increase in the interest rate, which is currently in a band between 0% and 0, 25% per year.

“Expectations will be anchored so as not to have any kind of excessive volatility”, he points out.

“He will do his best to say that these are independent decisions … and that one doesn’t necessarily accelerate the other,” Yale School of Management professor Steve Kelly told Reuters. “That’s the biggest challenge… this communication about phasing out and raising fees.”

Yesterday, a number of regional Fed officials made statements about the direction of US interest rates.

The president of the Fed’s district in Kansas City, Esther George, called for the monetary authority to start withdrawing stimulus soon. She said the decline in asset purchases should start “sooner rather than later”.

Joining in, James Bullard, chairman of the St. Louis Fed, said asset purchases “are probably not necessary at this point.” “There is some concern that we are doing more harm than helping.”

Robert Kaplan, president of the Dallas Fed, for his part, argued that by September the Fed would be in a position to announce the start of a gradual reduction in bond purchases.

The question today is whether Powell will adopt the same tone more hawkish (favorable to tighten monetary policy to curb inflation) than his colleagues.

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