Being in time is what matters.
Being in time is what matters
Historical decisions to be made at Jackson Hole
Feed a dog for three days, and it is grateful for three years. Feed a man for three years, and he will forget you in three days. The financial world is on the threshold of a remarkable event. Central banks are planning to normalize monetary policies despite Delta’s spread across the planet. Their generosity impressed markets in 2020, but QE is doing more harm than good to economies these days. Investors will forget about cheap liquidity flows from the Fed shortly as they did after the 2008-2009 crisis. When you do good, it’s taken as granted. When you don’t, you are hated.
Everything should be done in time. If the Fed delays monetary policy normalization, there’s a higher risk of double-digit inflation. If it starts to withdraw QE aggressively, the economy will suffocate. Jerome Powell and his colleagues need to find the golden mean, and they need it right now. It might be late tomorrow.
Whatever they may say, the Fed is still the pack leader, and other central banks continue following it. In August, all they ever talk about is the Reserve Bank of New Zealand scared of the Delta variant, but that’s not probably the problem. Adrian Orr decided to let the Fed take the lead. True, some regulators have already started raising rates, but wouldn’t it be wise to take a look at the leader when you’re a G10 currency issuer?
Stakes are high at Jackson Hole: central banks’ transition to monetary policy normalization, their attitude to COVID-19, a belief in a global economic recovery despite the pandemic. The markets have been sure the regulators aren’t afraid of the coronavirus until lately. Then, the RBNZ canceled a cash rate hike. Next, Dallas Federal Reserve Bank President Robert Kaplan said he was ready to revise his opinion concerning a QE taper if the Delta variant raged further. Even the virtual format of the meeting at Jackson Hole speaks loud and clear. Mister, would you please put on your mask and not scare people?
Admitting one’s faults isn’t enough. One needs to blame others for them! Ex-US President Donald Trump was the best at that. And I wonder whom the RBNZ and Robert Kaplan will blame for having dropped the kiwi and the US dollar? The former got into a pretty mess, and the latter almost got there. Jerome Powell will hardly want to repeat the experience on the eve of his re-appointment as the Fed chair.
— What’s the difference between prayers in church and on the trading floor?
— They are more sincere in the latter case.
Traders can only pray, looking at the dollar hovering on the eve of the Jackson Hole meeting. We all know a trend follows consolidation. God knows in which direction the EURUSD will go after Jerome Powell’s address. And we won’t have to wait for long.
Price chart of EURUSD in real time mode
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