World’s central banking elite gather in Jackson Hole amid darkening inflation clouds

The world’s central banking elite are convening at the US Jackson Hole resort today with a bleak inflation backdrop looming over the annual event for the first time in decades.

Chiefs of the US Federal Reserve and the Bank of England will deliver remarks that will be closely watched by investors for clues on how quickly they will hike rates in the coming months.

Top of the event’s bill is Fed chairman Jerome Powell’s speech tomorrow.

Investors are mythed over whether Powell will send hawkish or dovish signals to the market.

Wall Street’s rate hike expectations had cooled after a series of new data indicated stateside inflation may have peaked. The US’s consumer price index dropped to 8.5 per cent last month, a steeper fall than analysts’ were expecting.

Annual UK CPI inflation

However, Fed officials have reaffirmed their commitment to squeezing inflation with more rate rises, reigniting investors’ expectations for the world’s most influential central to keep tightening policy rapidly.

Powell’s speech “may not bring much new to the table, relative to expectations,” John Hardy, head of FX strategy at Saxo Bank, said.

“There is some chance that the Powell speech focuses a bit more energy on quantitative tightening as an important factor from here rather than super-size rate hikes, which would be an interesting test for the bond market,” he added.

The world’s most influential central bank has started selling assets it hoovered up during the pandemic, putting upward pressure on yields on US government debt. Bond prices and yields move inversely.

However, consultancy Pantheon Macroeconomics said Powell will “emphasise that the Fed wants to move rates above neutral but that the pace of the tightening is data-dependent. He likely will note that the July inflation numbers were encouraging but that the battle is not yet won.”

“The Fed is not out of the woods,” Silvia Dall’Angelo, senior economist at Federated Hermes, said, adding “inflation is still very elevated, there are still price pressures in the pipeline and the outlook for commodity prices is uncertain amid persistent geopolitical tensions.”

London-based investors will be keenly combing over Bank of England governor Andrew Bailey’s remarks to see whether another 50 basis point rate hike is coming at the next monetary policy committee meeting on 15 September.