Today the markets reacted to Powell’s speech at the end of the Jackson Hole Symposium with the dollar firming and the rest dropping. Although his comments seem hawkish, any further rate hikes will, of course, be data-dependent. The Fed is managing the economy better than many central banks…and consumers, however, with the lagging effect (up to one year) from rate hikes to feed into the economy there is a concern from central bankers that it is best to pause, unless inflation refuses to drop any more.
Europe’s economy is in a different place, with it already vulnerable and its biggest economy, Germany, struggling. The temperatures in Europe this winter could be the deciding factor as to whether they head towards recession, and if so, how long and deep will it be!
Although China is attempting to stimulate its economy, they have many hurdles to overcome from real estate to local government debt. This too will impact global demand and could help lower inflation. Commodities remain a major risk.
The macro outlook remains blurred, let’s see what central banks decide after their summer recess.