IMF Chief Economist Endorses BoJ Rate Hikes
The Jackson Hole annual economic symposium brought insightful commentary from IMF Chief Economist Pierre-Olivier Gourinchas, who emphasized that the Bank of Japan’s (BoJ) gradual rate hikes are a positive development for Japan. Gourinchas noted that inflation in Japan is now above the BoJ’s 2% target, and inflation expectations are beginning to rise, making the BoJ’s move towards normalizing monetary policy both timely and necessary.
However, he also highlighted potential market volatility as BoJ’s tightening contrasts with rate cuts from other central banks, including the Federal Reserve. Gourinchas suggested that while the market may have overreacted to these changes, more episodes of volatility are likely as global monetary policies diverge.
Bank of Canada Governor Macklem’s Potential Weekend Remarks
At the same symposium, Bank of Canada Governor Tiff Macklem was seen with other central bank leaders, hinting that he might share insights ahead of the Bank’s September 4 meeting. While there’s a possibility of interviews or comments over the weekend, it’s unclear whether Macklem will reveal any significant policy direction.
Fed’s Goolsbee on Rate Cuts: Path Matters More Than Size
Federal Reserve official Austan Goolsbee spoke at length about the anticipated rate cuts over the next two years, stressing that the path of these cuts is more critical than their size. Goolsbee pointed out that while most Fed members expect inflation to decline, the strength of the consumer market remains a key factor. He reiterated that future rate cuts will be heavily dependent on incoming economic data.
US Dollar Weakens Amid Fed Policy Speculation
The US dollar continued its decline this week, driven by market reactions to Fed Chair Powell’s recent comments. The debate now centers on the Fed’s terminal rate, with speculation that it could be lower than previously anticipated. This uncertainty is causing the dollar to weaken, particularly as other central banks like the BoJ continue to tighten their policies. As markets digest these developments, the dollar’s trajectory remains uncertain, especially with upcoming economic data likely to influence future Fed decisions.
European Markets Rally, Recoup Early August Losses
European equity markets saw strong performances this week, with the Stoxx 600 and major national indices recouping losses from earlier in August. The DAX, CAC, and FTSE all posted gains, driven by positive sentiment and a recovery from the early-August market rout. This rally reflects growing investor confidence, although the potential for volatility remains as central banks globally adjust their monetary policies.
Fed’s Bostic: Long-Run Rate Could Settle at 3%
Fed official Raphael Bostic estimated that the long-run federal funds rate might stabilize around 3%, contingent on incoming economic data. Bostic highlighted that while inflation has cooled faster than expected, the Fed remains cautious about moving too quickly with rate cuts. He emphasized that business conditions are robust, allowing the Fed some flexibility in its approach to normalization.
ECB Signals Potential September Rate Cut
Sources within the European Central Bank (ECB) suggest that there is growing support for a rate cut in September, though the decision is not yet final. With inflation developing as expected and economic growth remaining weak, the market has already priced in a high probability of a cut. This early signaling by the ECB indicates that further easing could be on the horizon, potentially extending into October.
Canadian Train Workers Return to Work Amid Government Intervention
In Canada, rail workers are returning to work following a brief lockout, after the government ordered binding arbitration. The labor impasse, which had a significant impact on the Canadian economy, was resolved with the intervention of the Minister of Labour, emphasizing the importance of maintaining industrial peace.
