La Française: End of restrictive monetary policy

La Française: End of restrictive monetary policy

August 27, 2024

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After the Fed released minutes from its July 30-31 policy meeting, there was no longer much doubt about the likelihood of a rate cut in September.

Jerome Powell took advantage of the Jackson Hole Economic Symposium to erase any remaining doubts. Here after several quotes published last week:

Fed minutes:

  • FED: 'VAST MAJORITY' saw September cut as likely appropriate.
  • FED: 'SEVERAL' officials saw case for cutting at July meeting.
  • FED: 'ALMOST ALL' Fed officials expected continued disinflation.

Jackson Hole:

  • POWELL: 'The time has come for policy to adjust.'
  • POWELL: 'The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.'

The last quote is probably the most important. The Fed is ready to lower rates in September but has not committed to the timing and pace of subsequent declines. Other central bankers spoke out with dovish language overall. The Governor of the Bank of England, Andrew Bailey, had reassuring comments on inflation, while Centeno, the Governor of the Bank of Portugal, explained that the decision to lower rates at the next ECB meeting would be a decision ‘easy to take’.

As a result, the overall tone of Jackson Hole signaled the end of restrictive monetary policy, providing support for risky assets. However, rate cut expectations seem quite aggressive for now: 100 bps of rate cuts by the end of the year in the United States and 200 bps over the next twelve months. We believe that a more significant slowdown in economic growth will be necessary for this scenario to occur.

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