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What you should know about the potentially most important moment in the history of monetary policy

The most eagerly anticipated meeting of central bankers in 2022, and possibly the "most important moment" in the history of monetary policy, is finally here - when policymakers from around the world gather for the Fed's annual economic summit in Jackson Hole.

Inhalt

  • Recap Summit 2021

  • Current inflation

  • Further interest rate hikes necessary

Recap Summit 2021

Last year, Federal Reserve Chairman Jerome Powell used the economic summit in Jackson Hole as a platform to downplay the sharpest rise in inflation in more than 40 years - calling the record increase "temporary" and nothing to worry about. That inevitability will always be remembered as the worst inflation report in Federal Reserve history.

Current inflation

Today, inflation around the world is at its highest in several decades and continues to accelerate inexorably.

 

Last month, consumer price inflation in the U.S. rose to a new four-decade high of 9.1% - the highest annual increase since November 1981. Elsewhere, inflation in the eurozone hit a new high of 8.9%. In the United Kingdom, inflation rose to a new 40-year high of 10.1% and is now on track to reach 19% by the end of the year - the sharpest increase since 1975 and nearly 10 times the Bank of England's 2% target. 

 

The catastrophic mistake policymakers made by waiting too long to tackle the strongest inflation increase in four decades has undeniably led to a loss of confidence in the Federal Reserve and its central bank colleagues.

 

Now the Fed and its colleagues find themselves in an even more difficult position, one that goes beyond monetary policy and instead targets policymakers' most important tool: their credibility.

Further interest rate hikes necessary

The process of regaining the confidence of financial markets and the public will ultimately depend on how the Federal Reserve and other central banks act this week. That task has become much more difficult, however, as natural gas prices on both sides of the Atlantic hit new record highs this week, trading 11 times higher than normal. The explosive rise in natural gas prices also pulled up other energy markets, sending Brent crude prices back above $100 a barrel. 

 

We traders know that there is a strong correlation between inflation and energy prices. When energy prices rise at a rapid pace, so does inflation. With inflation spiraling out of control, all eyes will be on every detail, statement and comment made during this week's Federal Reserve summit in Jackson Hole.

 

We expect central bank policymakers to use this highly anticipated event to further reiterate their restrictive stance and that more rate hikes are needed "in a big way." There is even growing expectation that central banks could surprise markets by signaling that an even larger and historic "100 basis point" rate hike could be on the table at their September meeting. 

 

Where will rates move next? Follow us at www.alternavest.com/en/inside-alternavest.

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What you should know about the potentially most important moment in the history of monetary policy

The most eagerly anticipated meeting of central bankers in 2022, and possibly the "most important moment" in the history of monetary policy, is finally here - when policymakers from around the world gather for the Fed's annual economic summit in Jackson Hole.

inside-alternavest.article.writtenBy Massimo Di Santo.
Alternavest Partners GmbH Otto-Heilmann-Str. 17 82031 Gr├╝nwald

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