The continuation of the banquet is approved – Newspaper Kommersant No. 154 (7116) dated 28.08.2021

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The US Federal Reserve System (FRS) will not tighten monetary policy, considering the current surge in inflation in the country temporary, said on Friday the head of the regulator Jerome Powell. He did not name the timing of the expected winding down of the stimulus program for asset repurchases and made it clear that the beginning of this process, whenever it happens, will not be a signal for an imminent increase in interest rates. The decision on this will be taken separately, and inflation, according to the Fed, will be reduced by “long trends”, including technological progress, globalization and the happy resolution of the logistics problems caused by the pandemic. The news immediately sparked a surge in equity markets around the world. The Russian ruble, in response to the Fed’s unexpected softness and Powell’s hints at the late start of the rate hike in the United States, reacted with a noticeable strengthening – for Russia and other emerging markets, the continued nature of the FRS monetary policy practically guarantees an influx of investor funds.

Markets have been anxious to speak at the Jackson Hole Annual Economic Symposium by Jerome Powell (for the second year in a row). The head of the FRS could explain how the regulator would react to the surge in inflation in the United States and when exactly the curtailment of the program of cash injections into the economy would begin, and the main expectations were related to the fact that the Fed could announce new terms for tightening monetary policy earlier than expected before this.

Recall that the Fed in its policy is guided by two main goals – achieving the level of full employment in the American labor market and stable inflation in the United States at the level of 2%. The problem with the growth rate of consumer prices just arose. The US Department of Commerce reported yesterday that consumer spending inflation rose to 4.2% y / y in July (excluding volatile food and energy prices up to 3.6%), the fastest growth in 30 years.

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Jerome Powell’s speech met expectations, but not their meaning. The head of the FRS announced that the surge in inflation is temporary, and no tightening of policy is expected.

“Untimely policy adjustments will unjustifiably slow down employment growth and other economic activity and drive inflation lower than we would like,” said the head of the world’s largest issuer. Inflation, in his opinion, in particular, will be reduced by the expected resolution of problems with the supply of goods and “long” trends – the development of technologies and globalization, leveling the level of prices in the world. It is not known exactly what long trends and what intensity can solve the problem within a few months – from Mr. Powell’s speech it could well follow that the Fed could wait for this effect for years. However, you can not wait: according to the head of the Federal Reserve, the American economy is approaching target indicators, after reaching which the regulator will be ready to start curtailing incentive programs (the buyout of assets worth at least $ 120 billion a month – $ 80 billion in government bonds and $ 40 billion in mortgage securities ).

The possible completion of these programs became known after the appearance of the minutes of the July meeting of the Federal Open Market Committee (see “Kommersant” for August 20), in fact, after that the markets began to expect further “hawkish” signals from the Fed. The committee members then talked about the possible start of the reduction of the asset repurchase program by the end of this year. Jerome Powell said yesterday that he is among those who support the idea of ​​abandoning the program. “At the recent FOMC meeting, I, like most of the participants, was of the opinion that if the economy develops as a whole as expected, it would be advisable to start slowing down the pace of asset purchases this year,” he said. As noted by MarketWatch, this is the first time that Mr. Powell has publicly expressed his personal opinion on this matter.

The curtailment of the asset repurchase program will mean a tightening of monetary policy and may lead to an increase in rates in the US market. This, in turn, can provoke an outflow of funds from emerging markets (as it was in 2013, after the first announcement of the withdrawal from the quantitative easing program, QE). The alternative is to raise the Fed’s key rate, which was de facto zeroed in March 2020. The timing of the completion of the asset repurchase program was not announced yesterday, and signals about a possible change in monetary policy were not sounded. Instead, it was stated literally the following:

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«The timing and pace of the forthcoming reduction in asset repurchases will not serve as a direct signal regarding the timing of the interest rate hike. ”

In theory, of course, this could mean an increase in rates before, and not after the curtailment of the asset repurchase program, but such an event is so unlikely that Powell was unambiguously understood: the Fed’s super-soft policy could last a long time, after the speech of the head of the Fed – indefinitely.

Mr. Powell promised that the Fed will adhere to a patient approach to its policy, as the regulator wants to return the US economy to full employment – the fight against “transient” inflation is fraught with a slowdown in job creation. According to him, after the July meeting, there is progress in the recovery of the labor market and it is likely to continue. At the same time, however, there is a spread of a new delta strain of coronavirus, and therefore the Fed “will carefully assess the incoming data and the development of risks.” However, the likelihood that in response to the continuation of the pandemic, the Fed will begin to tighten monetary policy is also very small.

Markets reacted very violently to the performance – the growth of stock indices and the cost of gold with a simultaneous fall in the yield of Treasury bonds and the dollar rate. Due to the increased demand for risk, the ruble was actively climbing yesterday against the bi-currency basket: no matter how large the future inflow of funds to emerging markets may be, it is inevitable.

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Vadim Visloguzov, Dmitry Butrin

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