The theme of this year is “changes in market structure and its impact on monetary policy”, Jerome Powell, said that he would stick to gradual pace of interest rate hike to support US economic growth and prevent risks, while warning of future economic crises.
The Jackson Hole Conference has always had a major impact on the market and is an economic vane for investors. Many Fed officials will deliver an important speech at the conference, talking about topics such as economy and monetary policy, providing clues to the market and investors about the policies of major central banks around the world. Among them, Powell’s statement on monetary policy has become the focus of global market attention.
Under Powell’s leadership, the Fed has raised interest rates twice this year. According to relevant reports, the current US federal funds futures trading market expects that the probability of the Fed raising interest rates by at least 25 basis points in September is 96%; if the rate hike is 25 basis points each time, the probability of the Fed raising interest rates four times in 2018 is 62.8%. At the annual meeting, the Fed announced the minutes of the recent monetary policy meeting. The minutes show that as long as the US economic growth is on the right track, the Fed is ready to raise interest rates again. Senior Fed officials are quite convinced that the strong economic growth of the United States will continue at least in the near future. This indicates that the Fed is about to raise interest rates, in line with the market's expectation that the Fed will raise interest rates for the third and fourth time respectively in September and December this year.
If the Fed raises interest rates too quick, it will unnecessarily shorten the cycle of economic expansion, and if the rate hike is too slow, there is a risk of overheating. In this regard, Powell said that the gradual rate hike could not only support the US economic growth, but also an effective way to deal with these two types of risks. Although Trump has criticized the Fed’s interest rate hikes more than once this year, the gradual rate hike strategy is the monetary policy line that Powell has been adhering to since he became chairman of the Fed this year, and has repeatedly defended this in public.
In addition, Powell's views on the turmoil in emerging markets have also get much attention from the market. The Fed’s monetary policy has supported the dollar’s strength, but the strength of the dollar is hitting on emerging markets. Recently, emerging markets such as Turkey have experienced economic turmoil and asset damage. A large number of countries with dollar-denominated debts are facing heavy repayment pressures, and their financial stability is severely challenged. Fluctuations in exchange rates in emerging markets have filled the global economic outlook with uncertainty. The Turkish lira has plummeted, the Argentine peso has fallen 40% since the beginning of the year, and the Brazilian Real as well as the Russian ruble have also depreciated. Emerging countries may facing a “domino effect” currency crisis.
Central bankers in India and Indonesia have all called on the Fed to slow down the pace of shrinking its balance sheet, saying that emerging market economies are already under severe pressure, and if emerging market countries collapse, the crisis will eventually spread to the world. However, the Fed did not respond to the demands of the central banks of emerging economies. Industry analysts said the market does not have to worry too much, and the situation in other emerging markets is not as bad as Turkey. John Ross, a senior researcher at the Chongyang Institute of Finance at Renmin University of China, said: "The Turkish currency crisis is only a problem under the country's misguided policy, which are specific to Turkey. Emerging economies, such as India, continue to grow much faster than advanced economies and remain the main engine of world growth."