Top central bankers deliver hawkish message to Jackson Hole

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(Bloomberg) – The world’s top central bankers delivered a stern and unified message on the need to rein in inflation, telling Jackson Hole that it is wide, here to stay and will require their forceful action.

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Leaders of the Bank of England, Swiss National Bank, Bank of Japan, Bank of Korea and several European Central Bank policymakers spoke at the Kansas Fed’s annual retreat on Saturday. City in Grand Teton National Park, Wyoming.

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Their statements follow remarks by Fed Chairman Jerome Powell on Friday, which sought to unequivocally commit the U.S. central bank to raising interest rates until inflation slows significantly.

Policymakers in Europe and the United States, battling the highest inflation in decades, are aggressively raising rates and pushing back on suggestions they will waver if their economies tumble as price pressures remain too much. high.

The rally in Jackson Hole – the first in-person since the pandemic spread in 2020 – was a platform to convince investors they would follow even if it caused pain.

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Isabel Schnabel, member of the ECB’s executive board and the most anticipated speaker of the day, urged her colleagues to act with determination to slow price increases which are approaching 10% in Europe and exceeding 8% in the United States.

“The likelihood and cost of current high inflation rooted in expectations is uncomfortably high,” Schnabel said. “In this environment, central banks must act forcefully. They must lean forward with determination against the risk that people begin to doubt the long-term stability of our fiat currencies.

She also acknowledged that there was a risk of recession, but told her fellow policymakers that « even if we go into a recession, we basically have no choice but to continue our path of normalization » — echoing Powell’s remarks the day before that « reducing inflation is likely to require a prolonged period of below-trend growth.

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ECB officials are debating how much of an interest rate hike might be appropriate at their September meeting, with some saying a 75 basis point hike should at least be part of the discussion. In July, the Governing Council raised rates by half a percentage point.

ECB Governing Council member Francois Villeroy de Galhau, speaking on the same panel as Schnabel, said policymakers must be determined to tackle record inflation to avoid being forced into moves « unnecessarily brutal » interest rates later.

There was also discussion about how long high inflation might persist. Swiss National Bank President Thomas Jordan said structural factors in the economy could contribute to persistently high inflation for years to come, and that it is getting wider and wider.

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“There are signs that inflation is increasingly spreading to goods and services not directly affected by the pandemic or the war in Ukraine,” he warned.

Others made a similar point on Friday.

Gita Gopinath, first deputy managing director of the International Monetary Fund, said US inflation will persist for at least another year or two.

Agustin Carstens, director of the Bank for International Settlements, has warned that the global economy risks weakening if monetary policy makers do not work with governments to revitalize supply problems that could continue to drive up l ‘inflation.

‘Air pockets’

“Central banks cannot hope to fill all the economic air pockets and instead must focus first and foremost on keeping inflation low and stable,” Carstens said. « Monetary policy faces the urgent challenge of dealing with the current inflationary threat. »

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Central bankers also expressed the need to communicate more clearly and simply. The sentiment was evident in Powell’s speech, which, at five pages, was significantly shorter than in previous years. ECB Governing Council member Joachim Nagel said policymakers sometimes complicate the message too much.

« The story is pretty clear. Inflation is way too high. And so the answer in a situation like this is also obvious. That’s what central banks need to do in such a situation. We need to increase rate,” the head of the German Bundesbank said on Saturday.

« It may be complicated to know when we will stop or when the time will come when we have to stop, » he said from the audience. “And I have to say that I don’t really know. It is far too early to ask where the terminal rate is, more or less.

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Colleagues from Asia shared an update from their region.

Bank of Korea Governor Rhee Chang-yong – who is also fighting inflation and presided over a 25 basis point rate hike last week – said there was a good chance Korea and other emerging Asian economies are returning to the low inflation and growth environment that dominated the pre-pandemic period.

On the other hand, the Governor of the Bank of Japan, Haruhiko Kuroda, detailed an economic situation in his country that is very different from what Europe and the United States are experiencing.

“Somewhat miraculously, we now have inflation at 2.4%. But almost entirely caused by rising international commodity, energy and food prices,” Kuroda said.

Inflation will come down in his country later this year and next, he said. « So we have no choice but to continue monetary easing until wages and prices rise in a stable and sustainable way. »