Possible messages from Powell's Jackson Hole speech

At the Jackson Hole meetings that begin tomorrow, eyes will be on Fed Chairman Powell's speech. (Tera Yatırım)

At the Jackson Hole meetings that begin tomorrow, eyes will be on Fed Chairman Powell's speech. Powell's prospect of providing any indication of the Fed's future policy changes and broader guidance on global monetary policy, in particular, makes key points in the speech important.


Important issues at this point will be focused on the Fed's inflation targeting strategy and potential yield curve control. Opinions on the targeting of the inflation target as average inflation rather than a direct targeting and sometimes exhibiting an asymmetrical image that exceeds the target gain weight. The Fed made significant monetary expansion to revive the economy that had stagnated during the epidemic period, and as a result, the inflation picture remains stagnant. At this point, there are some Fed members' opinions that the inflation effect of further monetary expansion is negligible and that average inflation targeting will compensate for periods where targets previously did not meet. This is a bit like taking a double dose of the drug in the evening, that had forgotten to be taken in the morning. Overheated inflation and subsequent withdrawal of liquidity will be the phases that monetary policy will undergo in the next phase, but will the problem be exacerbated by inflation into a chronic problem, or will it be in the form of rising above a temporary band like in the taper tantrum period? This inflation strategy will determine the movements in the bond market. The possibility of the Fed to adopt a flexible approach in terms of inflation increases, as it does not appear in the near future with current conditions to move away from the near-zero interest reference.


Powell's message in the Jackson Hole speech is likely to be a preview of the Fed's September meeting.


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