"Davos Forum of Central Bank Governors" - Jackson Hole Central Bank Annual Meeting will be held from Thursday to Saturday local time in the United States. The theme is "Structural Changes in the Global Economy". Officials, economists, well-known scholars, and financial media gathered together to discuss economic prospects and monetary policy.
For these key monetary policymakers, there is an important question waiting to be answered: whether the global economy is emerging from the persistent low inflation, low interest rate period between 2008 and 2020, which some economists also refer to as to the "new normal". And this will undoubtedly affect the trend of the financial market, thus attracting the attention of global investors.
Since Volcker, successive Fed chairmen (Greenspan, Bernanke, Yellen) have attended the annual meeting successively, which also makes the Jackson Hole global central bank annual meeting a bellwether of global central bank policies. Some important policies The changes are all released to the market in advance through the platform of the central bank’s annual meeting. Without exception, they were all realized shortly after the announcement or had a profound impact on the market.
For example, the Federal Reserve released the signal of QE3 in 2012, signaled the end of QE in 2014, signaled interest rate hikes in 2015 and 2016, and announced a new monetary policy framework in 2020. A more recent case was just last year, when Powell used an uncharacteristically short speech to demonstrate the Fed’s determination to bring down inflation without hesitating to drag the economy into recession, triggering a deep correction in U.S. stocks in just nine minutes.
So in a way, the Jackson Hole meeting is even more important than the Fed meeting. It can be predicted that market participants will listen carefully to every speech of the governors at the meeting to judge the direction of monetary policy. Therefore, for Powell's speech at 10:05 p.m. Beijing time on the 25th, the market will disassemble each word word by word, looking for clues to this issue.
Unlike last year's meeting, when European and American central banks were facing the highest inflation in decades, against the background of aggressive interest rate hikes, the inflation rate in the United States has dropped from 9% to 3%. Over the past few months, we have seen a rapid decline in inflation.
Now, the Federal Reserve is entering the most difficult stage of fighting inflation - how to make the next adjustment to interest rates to properly control inflation without having a serious impact on the market and the economy. Economists are starting to worry that the Fed is struggling to get to the "last mile" of rate hikes, and that as consumer and business spending pick up in the coming months, inflation's recent downward trend will stall, forcing the central bank to do it again. hike.
The minutes of the Federal Reserve meeting last week showed that "inflation still has upside risks, and the possibility of continuing to raise interest rates cannot be ruled out." From this perspective, Powell is unlikely to deviate significantly from the above stance this week, and expectations of interest rate cuts next year may be further downplayed, while a baseline scenario for the second half of the year may be to maintain interest rates in a restrictive area for a longer period of time.
Ellen Meade, a former Fed adviser and Duke University economist, said it was too early for the Fed to declare victory, and it was also too early to announce a halt to rate hikes. Powell does need to discuss the "last step" at some point, but he is now discussing the end of raising interest rates and how long he will keep the policy rate unchanged. The "last step" is something after that.
Nick Timilaus, a well-known macro reporter with the title of "Fed Microphone", said that referring to Powell's performance in the past few years, it is unlikely that he will reveal very short-term policy considerations in his speech. On the contrary, he is more likely to have provided a broader framework for the possible direction of policy after reviewing what the Fed has done. Of course, the main premise of the argument is still that "the Fed's work to reduce inflation has not yet been completed."
Regardless, investors in financial markets clearly need to be careful ahead of Powell's grand finale tonight. Both the U.S. stock and bond markets fell sharply overnight, which seems to have shown in advance the tense atmosphere of "the rain is about to come."
In response to possible hawkish remarks, the market continued to sell U.S. bonds in advance even before the meeting started, causing the 10-year U.S. bond yield to set a new 16-year high, thus driving the dollar index to strengthen for 5 consecutive weeks.
Some options strategists say investors may be underestimating the magnitude of the underlying market turmoil that Powell could unleash, which could make them more vulnerable to hawkish surprise news.
In addition, the encryption market is also focusing on Powell's speech at the Jackson Hole central bank meeting tonight, so the market has been in a state of low volatility in recent days, and funds are hedging, waiting for positive and negative expectations to guide the direction. The rebound or dip in the encryption market will begin today Late decision. This is not only caused by the "dormant" or "loss" of investors, but more importantly, the institutional interest in encrypted assets is changing due to the uncertain and high-intensity regulatory policies in the United States and the external "harsh" economic environment.
Summarize
At present, governments of various countries are facing the difficult problem of controlling inflation. How to adjust interest rates without seriously affecting the market and economy has become a troublesome issue. Therefore, the Jackson Hole central bank annual meeting is not only a discussion platform, but also a weather vane for global central bank policies. Market participants will pay close attention to the speeches of central bankers at the meeting to judge the direction of monetary policy. So tonight, will Powell's speech trigger another plunge in US stocks? Can it set the tone for the future of the crypto market? The answer may lie between the lines.