FED Jerome Powell at Jackson Hole Goes Full Shock and Awe, Urging Global Central Banks to ‘Forcefully’ Raise Interest Rates In Battle With Inflation

August 29th 2022

by David J Mitchell  

Jerome Powell spoke on Friday evening, and in somewhat of a shock and awe policy statement has backed themselves into a corner leaving very little room for themselves to manoeuvre.

Global asset markets fell hard immediately following his speech and are expected to continue to deteriorate in value, with high volatility now baked in the cake.

He stated.... Central bankers must keep raising rates to vanquish inflation or risk letting price rises batter the economy for years to come, he warned.

He said the lessons of the 1970s and 1980s must not be forgotten. If central banks are too slow to act or waver in their determination

“Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance,” he said. 

“Reducing inflation is likely to require a sustained period of below-trend growth.” (read here global recession).

“While higher interest rates, slower growth, and softer labour market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

“Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy,” said the Fed’s chairman.

My first sentence in respect of leaving themselves no room to manoeuvre is based on the fact that they are now solely focused on the headline inflation metrics, without factoring in the harm it does to the economic engine itself or the rising US$ and allowing the dollar index (DXY) to rise ever higher, tightening the tourniquet for emerging markets. If they pivot and revert back to easier policy based on severe negative economic pressures they lose credibility yet again.

Inflation is incredibly sticky, driven by an energy crisis and severe growing food shortages globally, amongst many other logistic bottlenecks and supply deficits, destroying demand will of course bring headline inflation numbers down, but only aggravates the pain on economies that are already contracting rapidly. You cannot solve the underlying issues of these demand imbalances by shooting the patient.

Quite simply Jerome Powell cannot dream of instigating a Paul Volker solution as we are in a global debt crisis of unprecedented dynamics and rising yields only increases debt loads and serviceability of debt becomes untenable, which was not the case in the 1970’s (when Volker finally became head of the FED and drove interest rates to 20% to fight inflation).

The FED have yet again confirmed that the end game lies in an eventual “Global Reset” and an extensive monetary debasement.

I will follow up with charts and buy support zones in the precious metals, the medium to longer term fortunes of precious metals is looking ever brighter.



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