Central Banking Leaders Signal Hawkish Outlooks
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This past week, the Jackson Hole Economic Symposium took place and served as a wake up call for those who grossly misinterpreted the Federal Reserve's message from the past two FOMC meetings. Based on subsequent statements from members of the committee, September is likely to bring another rate hike to the tune of 50-75 basis points. The resolve of the Fed was cemented further by a speech from Chairman Powell and echoed by New York Fed President John Williams and Cleveland Fed President Loretta Mester. This week, traditional and crypto markets were in the red, reflecting the sentiments around a tighter policy projection.
Jackson Hole offered a glimpse of what can be expected from the foremost central banking authorities from around the world and a glaring split divides East and West. Unsurprisingly, the Federal Reserve, Bank of England, and European Central Bank reinforced stringent policy objectives in their fight against inflation. Powell’s comments made it clear that the Fed has no intention of slowing its interest rate hikes by 2023, as many have bet. The Fed and its allies are resolute in combating inflation even if it means that businesses and individuals will bear the brunt of the squeeze and economic growth slows.
Powell’s counterparts to the East are on a different path, but not one that the Fed could follow without a time machine. The central banks splintering from the West, namely New Zealand, and Korea, were among the first to pull the trigger on hiking interest rates back in 2021 while the West held off. Japan, the outlier of every central bank, maintains an interest rate of -0.1%, focusing on bolstering corporate profits and wages. Collectively, the objectives of the East remain focused on loosening, rather than tightening policy. Despite their diverging tactics, everyone will suffer varying consequences. The yen, which lost nearly 4% this month, is at the mercy of the currency market’s volatility. A stronger dollar impacts every currency as well as borrowing and trade.
A hawkish West will continue to batter stocks and bonds, reminding everyone how globalization makes it nearly impossible for any state to be sufficiently insulated from widespread economic disparity. This is true for markets as well. What occurs in traditional markets is now commonly reflected in crypto. News from the Fed is followed with increased scrutiny, making it one of most important indicators for how coins will perform. As the world's leading central banks have signaled a willingness to sacrifice economic growth in order to crush inflation, traders in all markets are bearish once again.