Held via video call on the 27th-28th... Possibility of mentioning band-type inflation targeting system
[Asia Economy Reporter Jeong Hyeon-jin] Due to the impact of the novel coronavirus infection (COVID-19), the Jackson Hole Meeting, the annual economic policy symposium of the U.S. Federal Reserve (Fed), will be held online for the first time in history on the 27th (local time). The market is closely watching the remarks to be made by Fed Chair Jerome Powell on this day, with expectations that he will hint at a band-type inflation target system and a policy to maintain 'zero (0)' interest rates for the next several years.
According to Bloomberg and others on the 26th, the Fed will hold the online Jackson Hole Meeting for two days starting on the 27th under the theme "Finding the Path for the Next 10 Years: Implications for Monetary Policy." Since 1982, central bank governors have gathered annually in Jackson Hole, a resort town near Grand Teton National Park in Wyoming, where they comfortably exchanged views on monetary policy against the backdrop of the Rocky Mountains. However, this year, such scenes will be difficult to see.
Attention is focused on Chair Powell's speech scheduled for the first day of the event. The Fed has been reviewing its monetary policy framework over the past two years to address the entrenched low interest rate and low inflation environment in the global economy, and there is growing anticipation that the results will be revealed. It is also seen as an opportunity to gauge the Fed's long-term strategy ahead of the Federal Open Market Committee (FOMC) regular meeting scheduled for the 15th-16th of next month. CNBC reported, summarizing market experts' comments, that "Powell is expected to preview which parts of the policy guidance need significant changes."
Specifically, there is a forecast that the Fed will set an 'average inflation target' and provide a 'band' around the current target of 2%. This means that even if inflation exceeds the target, the Fed will not raise the benchmark interest rate and will tolerate it for some time. The Fed set the inflation rate target at 2% in 2012 but has not achieved the target so far.
Accordingly, the benchmark interest rate, currently at zero level, is expected to be maintained for a long period. John Hill, senior strategist at BMO Capital Markets, analyzed that the zero interest rate will be maintained and the central bank will act more aggressively to meet the inflation target. Harvard University professor Jason Furman, who served as chairman of the Council of Economic Advisers under the Barack Obama administration, said, "It would not be surprising if interest rates remain at the current zero level five years from now," suggesting that there will be no interest rate changes for the time being.
There is also an expectation that the Fed may formalize a change in its approach to achieving full employment. In the past, the Fed avoided letting the unemployment rate fall below the natural rate of unemployment because it could lead to rapid inflation. However, Bloomberg reported that now, even if inflation rises, the Fed is unlikely to make decisions that suppress the labor market.
On the 28th, the day after Chair Powell's speech, Andrew Bailey, Governor of the Bank of England (BOE), and Philip Lane, Chief Economist of the European Central Bank (ECB), are scheduled to announce their own monetary policy review results.
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