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At Jackson Hole, leading central bankers present a hawkish message

The benchmark indices fell between 3 and 4 percent apiece on Friday as a result of Powell's speech, which pushed US stocks down.

Maitry Kothari

Updated : Aug 28, 2022, 03:06 PM IST | Edited by : Maitry Kothari

At Jackson Hole, leading central bankers present a hawkish message

The message from US Federal Reserve Chair Jerome Powell to investors in Jackson Hole, Wyoming, was crystal clear that the central bank is likely to keep interest rates high to combat the inflation.

Powell indicated that reducing inflation is the Federal Reserve's top priority over growth in his address, which lasted less than nine minutes, by using the word "price stability" nine times, or almost once every minute.

The benchmark indices fell between 3 and 4 percent apiece on Friday as a result of Powell's speech, which pushed US stocks down. Participants in Dalal Street expect a similar automatic response on Monday.

The hawkish Powell announced a third rate hike of 75 basis points (bps) in September, preparing the Indian markets for another rate increase at the next monetary policy meeting. This rate increase will have a negative immediate impact on the Indian equities markets.

The head of the Fed cautioned that the economy would experience "some pain" in the coming months, according to VK Vijayakumar, chief investment strategist at Geojit Financial Services NSE 0.11%. Although he emphasised that the rate hike decisions will be data driven, this suggests that the rate hike in September could be significant.

Markets will be concerned about the tight monetary conditions persisting longer than expected and the interest rates could remain high in the economy, the analysts said.

"Investors who cheered Fed's dovish comments in July FOMC meeting and were pricing in rate cuts in early 2023 are hugely disappointed with this hawkish message from the Fed." Ritika Chhabra, Economist and Quant Analyst, Prabhudas Lilladher.

However, some experts argue that Powell's remarks were in line with market expectations and that there is little chance of a trend reversal toward policy normalisation in the near future. They do not, however, exclude a reflexive response.

His statements were in line to the market's expectations, said Naveen Kulkarni, Chief Investment Officer, Axis Securities. "This makes the incoming US economic data more important to chart the future US Fed course of action" he added.

The sole novel revelation from this speech, according to fund manager Aishvarya Dadheech of Ambit Asset Management, was the Fed's admission that economic growth might be sacrificed for inflation.

"With initial signs of the US economic data showing signs of deterioration, it will be interesting to see how far the Fed can stay on hawkish ground," he added.

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At Jackson Hole, leading central bankers present a hawkish message

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