Each year, Wyoming (western US state), known for its snow-capped mountains, winter sports resorts and national parks, becomes the center of the financial world. The year 2019 will not escape tradition with the Symposium of the American central bank – the Federal Reserve -, which will be held at Jackson Hole from August 22 to 24.
The subjects of discussion have rarely been so numerous: Sino-American trade war, currency war, war for technological leadership and world recession. Everything is pushing the financial markets into turmoil.
These risks motivated the Federal Reserve to lower its key rates in July to offset their recessionary effect on US activity. And it is in anticipation of this relaxation that the European Central Bank (ECB) has outstripped its sister by announcing future monetary gestures. All investors are therefore expecting: what will the Fed do in the coming months? Is the July drop a one shot event or the first easing in a cycle? Will the ECB, in turn, actually cut its key rates? Will its already negative deposit facility rate be further lowered? Can the Bank of Japan be even more stimulating? Should the Bank of England, at the time of Brexit, do everything to avoid a recession?
These three days of meetings at Jackson Hole will provide some initial answers to some of these questions. This is the hope of the financial community, because the Symposium will involve central bankers, renowned politicians and economists. The financial world has changed. Are these central banks still independent?
Pressures on the Fed by US President Donald Trump and the appointment of Christine Lagarde to the head of the ECB, considered political because it did not come from the seraglio of central bankers, have revived these fears! However, “A central bank president appointed for political reasons may be independent of political power, once appointed, explain the experts at Natixis. But the Central Bank can lose its independence if it is forced to participate in the country’s economic policy strategy, not by political pressure, but to avoid an economic or financial crisis. In the United States, can the Federal Reserve avoid acting to try to depreciate the dollar if the overall strategy of the country is a mercantilist strategy, additional growth being sought from the increase in sales of goods and services to the rest of the world? they wonder. In the euro area, can the ECB avoid ensuring the budgetary solvency of the countries, if a certain number of countries pursue budgetary policies which could lead to the loss of solvency and to a public debt crisis without the decline in interest rate organized by the ECB? “
The questions are therefore numerous. The answers are far from obvious, especially in an environment of widespread negative interest rates. An unprecedented financial world.
Currency war: Beijing, scapegoat
The currency war is a reality. What can the Bank of Japan or the Bank of England do, caught in the arm wrestling between the United States, China and Europe? The Bank of Japan can only continue its extraordinary policy to avoid an appreciation of its currency. The yen plays the role of a safe haven during periods of economic and financial stress. This is obviously the case with the trade war.
The Bank of England is also forced to be as flexible as possible in its actions and in its communication. In the sights of the markets: Brexit, which should become a reality at the end of October, unless the Johnson government were to fall. This is not impossible because its majority hangs by a thread, in this case a single voice in Parliament.
The Central Bank of China is accused by Washington of manipulating its currency. But this criticism “Unlikely to find an echo with the International Monetary Fund (IMF), as requested by the United States. The weak yuan primarily reflects the economic slowdown […]. What the United States is asking, ultimately, is that China manipulate its currency by selling the dollar to artificially support the yuan “, estimates Valentin Bissat (Mirabaud).