Weekly Update - Renowned Jackson Hole Symposium disrupted by recent COVID developments
As they do every year at the end of August, leading central bankers met to discuss the autumn’s major economic themes. What set 2021 apart is that the conference was held online only, and not at the conference centre in Jackson Hole, Wyoming (United States), due to the pandemic’s recent track. And in addition to the format, COVID definitely disrupted the substance of the discussions at Jackson Hole.
In fact, the variants are casting doubts over the strength of the recovery. In many European countries and the United States, where vaccination rates are relatively high, the Delta variant continues to circulate and could cause social-distancing rules to stay in place, hampering economic activity. Some countries with lower vaccination rates are still imposing strict public health policies (such as the “Zero Covid” policies in China, Japan and Australia) with restrictions that could have a greater impact on their economies, depending on how the virus tracks. As a result, there is a substantial risk of disparity in the world’s different regional economies and, whatever transpires, persistent major difficulties for some sectors and production chains. These problems are keeping the pressure on costs of some inputs, which, against the backdrop of a weakened recovery, could turn out to be more of a punishment for business than a risk for inflation.
These uncertainties as to the speed and scope of the recovery will push central bankers to continue supporting their economies. The message from the Federal Reserve’s Jerome Powell during the Jackson Hole conference confirms that the Fed plans to scale back its tapering only gradually by the end of 2021. Furthermore, it is not expected to raise key rates until the public health outlook is clearer. Although the European Central Bank did not take a public stance during the conference, we can expect that it will wait for real confirmation of the recovery before changing its policy course. In China, where the central bank had taken a step toward easing its policy before the summer, the uncertainties around COVID will confirm this move toward a more accommodating monetary policy.
Bottom line. Without disputing our scenario of a continued economic recovery, the summer’s public health news argues for more moderate, more disparate, and more uncertain growth. As a result, monetary policies are keeping an accommodating tone that continues to provide liquidity to support the financial markets.
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