Last week, hundreds of economists, central bank officials and journalists from around the world gathered at the annual Jackson Hole Economic Symposium to discuss the most pressing global economy issues. In a highly anticipated speech on Friday (Aug. 24), Federal Reserve chair Jerome Powell declared the “time has come” to cut interest rates from their 23-year high and shift focus from inflation to rising unemployment. Since the U.S. economy is deeply entrenched in global markets, other central banks often look to the Fed to guide their monetary policies.
Andrew Bailey, the governor of the Bank of England, indicated that the risk of upward price pressures is receding. “[The] second-round inflation effects appear to be smaller than we expected,” he said in a speech on Friday at Jackson Hole. Earlier this month, the U.K. central bank cut its benchmark lending rate for the first time since early 2020 by 25 basis points. Still, investors saw Bailey’s approach as more dovish than Powell’s, sending the British pound to a 29-month high against the U.S. dollar after the Jackson Hole summit.
During a rate cut cycle, the U.S. dollar is expected to depreciate against global currencies as investors will seek higher yield opportunities in countries keeping rates higher for longer.
The European Central Bank (ECB)’s Governing Council lowered its lending rate in June and indicated another interest rate cut in September. At the symposium, Latvia’s central bank head, Martins Kazaks, told Reuters, “Our June projections assumed two more rate cuts this year, and right now, I don’t see any reason why we shouldn’t follow through.” Portgul’s top central banker, Mario Centeno, told Bloomberg the decision would be “easy.” Kazaks and Centeno are both members of the ECB’s governing council.
The Bank of Canada is also expected to cut interest rates in September for the third consecutive time.
The Bank of Japan, tasked with governing an economy facing more unusual circumstances than most developed countries, stood out as an exception. The world’s fourth-largest economy wants to embrace inflation as an opportunity to grow wages, break out of weak economic growth and end deflation. However, the Japanese central bank also understands it can’t afford to let inflation get out of control. The Bank of Japan Governor Kazuo Ueda did not attend the Jackson Hole summit but gained much attention during his speech to the Japanese Parliament on Friday, in which he promised to keep neutrally raising rates—without restricting or stimulating the economy.
