The Day at a Glance | Aug 29 2022

The Top

*Central Banks committed to containing inflation in Jackson Hole, even if this entails slower growth or greater unemployment.

*ECB needs to increase the interest rate in at least a 50bp due to secondary effect prices: Martins Kazaks, member of the ECB.

*Negotiations to revive nuclear pact with Iran will extend to September.

*Central Bank of Japan will maintain an accommodative monetary policy until wage pressures are sustained: Kuroda, President of the BoJ.

Economic environment

Jackson Hole echoes. Markets are digesting messages sent by central bankers in the Jackson Hole Symposium with growing pessimism among risk assets after officials pointed out that that they will have to do more to contain inflation and that interest rates must remain high for longer than what investors had anticipated; even if this entails taking the global economy into a recession. The most relevant speech was made by Chair of the FED, Jerome Powell, who affirmed that the road ahead will be difficult for businesses and families as they are willing to cause slower growth and greater unemployment in order to avoid inflation from increasing. He acknowledged that it´s possible that the increase in US interest rates will be more moderate, but September´s decision will still depend on economic data and rates will not record low levels in the foreseeable future. Markets have had to adjust their expectations as they had anticipated the FED would pause monetary restriction if the economy showed weakness, something that was explicitly denied by Powell. The message was also clear for Europe. Isabel Schnabel, member of the ECB, said that they have few options regarding the path for interest rates; even though Europe´s economy is still suffering the economic consequences of the conflict in Ukraine and sees growing risks of a recession, they must keep increasing rates aggressively in order to halt record-high levels of inflation. Agustin Carstens, General Manager of the Bank for International Settlements, reminded monetary authorities that it will be difficult to control inflation without negatively affecting growth; although he suggested increasing investment to get around supply-side problems – which are causing inflationary pressures – as soon as possible.