From the first sentences of his speech, the tone was set. The message today will be “shorter, more direct”. Fed Chairman Jerome Powell made it clear on Friday to the financial community, which was eagerly awaiting his speech at the Jackson Hole monetary policy symposium, that the central bank was determined to fight inflation and bring it back to the target of 2%, no more (it was 8.5% in July over one year in the United States).
The fight against soaring prices “will probably require a restrictive policy for some time”, Jerome Powell’s remarks that put an end to hopes of an accommodating pivot next year, which would have resulted in a drop in rates from the first half of 2023, had imagined investors who, on this assumption, s were set to buy back shares in July, triggering a summer rally after several months of deep depression. The nice rise of last month (+8.87%), the best month of July since 2009 (+9.10%), has been partly erased today, the CAC 40 closing down 1.68%, at 6,274.26 points, while on Wall Street, the S&P 500 and the Nasdaq Composite dropped more than 2%. The stock market is now expecting a further 75 basis point increase in the key interest rate in the United States in September.
History of remaking the film of these last weeks, Henri Allen, strategist at Deutsche Bank, recalled this morning that “When Powell last spoke following the last Monetary Policy Committee meeting in July, markets interpreted his comments from a dovish [accommodant], which contributed to a strong rally in risk assets in the following weeks. The publication of a much weaker than expected consumer price index a few weeks ago also fueled this trend”even though many central bankers at the Fed’s regional offices, such as Esther George of the Kansas City Fed, host of the Jackson Hole symposium, tried to calm things down to say that the fight against inflation was far from over and that once rates were raised, they would not be lowered right away.
“Price stability is the responsibility of the Federal Reserve and is the foundation of our economy. Without price stability, the economy does not work for anyone. In particular, without price stability, we will not be able to ensure that the labor market is solid, profitable for all, for a long time. The burden of high inflation falls heaviest on those least able to bear it”he said in a speech that lasted only 15 minutes, before the start of the various round tables of the symposium, which will last until tomorrow.
+75 basis points also in the euro zone?
On Saturday’s program, a round table will hold particular attention, one which will notably bring together Isabel Schnabel, member of the executive board of the European Central Bank, and François Villeroy de Galhau, head of the Banque de France and, as a result, one of the governors of the ECB, while the energy crisis in the euro zone increases inflationary pressures. The prices of futures contracts on gas and electricity are setting new records in Europe. “These prices exaggerate the real cost borne by businesses and households, […ils] are not those actually paid by all companies, some of which have long-term contracts with their suppliers, and even less by households who benefit from capping measures or tax aidexplains Bruno Cavalier, economist for the private bank Oddo BHF, but the increase in the energy bill is still massive. »
Half an hour before Jerome Powell’s speech, the Reuters news agency reported, citing five sources close to the discussions, that ECB officials wanted to discuss a 75 basis point hike in key rates during the September meeting given the deteriorating inflation outlook and despite recession risks. This information momentarily pushed the euro back above the $1 threshold, before Jerome Powell’s “hawkish” speech gave the greenback a new boost.
The shopping center manager Unibail-Rodamco-Westfield (-4.3%), present in both the United States and Europe, recorded the largest drop in the Cac 40. Rate hikes, in addition to curbing consumption, are increasing the cost of credit for real estate companies , heavily indebted.