The president of the Federal Reserve of the United States, Jerome Powell, has put the improvement in employment levels as the unequivocal signal of recovery that could trigger an additional reaction in a restrictive sense of the central bank, until yesterday
The president of the United States Federal Reserve (Fed), Jerome Powell, made an unexpected turn in the direction of his speech regarding the future of American monetary policy.
Investors in the markets may have hoped that early completion of the bond buyback downsizing process would be suggested, but they did not anticipate Powell would acknowledge that qualifying the inflation hike process as transitory is no longer applicable.
Obviously the mention made last Tuesday caused important adjustments in the markets, almost the size of those seen the previous Friday as a result of the dissemination of the existence of the Omicron variant and the threat of a possible new interruption of mobility in many economies.
Removing the term “transitory” from his speech implies a correction in relation to a position that Powell himself had held against all indications.
The complacency of the markets in relation to the strong inflationary pressure that exists will have to be another, the directions of its movements will undoubtedly become more erratic in the future, because the Fed has highlighted that its priority over the lack of jobs runs risks .
It seems to me that what caused this turn has to do in part with the consolidation of the threat (which had been cooking in Europe and other regions in weeks previously) related to Covid-19.
The interruption of mobility and the return to confinement not only mean less progress in employment figures, but could accentuate the problems in the supply chains that have largely been responsible for the inflationary spike.
Although the basis for inflation to grow more seems poor due to lower growth. Their permanence at high levels is a greater threat.
From my point of view, if something could have characterized Powell’s management (by the way, recently ratified for another term in office) it has been his communication strategy. The sample is the reduction in central bank purchases.
A fact that in 2013 shook the markets with the mere mention that President Bernanke made at that time, now it was dosed little by little, without ambiguous language, in such a way that when it was decided its impact was unnoticed.
In this process, Powell has put the improvement in employment levels as the unequivocal signal of recovery that could trigger an additional reaction in a restrictive sense from the Fed, until yesterday.
The nodal point of the “pivot” is to put inflation back in the spotlight of investors after having neglected it for several months.
Is it the recognition of a mistake? We do not know, it depends on what is communicated from now on. If you are not going to use the word transitory, will you use another definition to support a loose and timeless view of pressures? Will the Fed go into an accelerated process of “updating” regarding the circumstances against which it backed away?
What there is no doubt is that the uncertainty in the markets is greater. The risk burden due to different factors has risen significantly at the end of November and the end of the year will be volatile and less favorable for the markets.
* Rodolfo Campuzano Meza is Managing Director of INVEX Operadora de Sociedades de Inversión. Any question or comment can be sent to the mail.
Twitter: @invexbanco
Reference-www.eleconomista.com.mx