Daily Commentary BY THE CURVE TEAM –

Conflicting Views Leading Into Jackson Hole

25th of August, 2017

Despite more twitter outbursts by the US President overnight, markets remain focused on what comes from tonight’s annual central bank symposium in Jackson Hole. In the lead up we have heard some conflicting comments from members of the FOMC, which continues to beg the question as to when we will see the next interest rate increase.

Where FOMC members appear to have agreed, is that the process of reducing its $4.5 trillion balance sheet will kick off next month. However, the near term outlook for US interest rates is still in question.

Despite a pick up in growth and a fall in unemployment, low inflation levels are undermining confidence policy makers outlook for inflation. Dallas Fed Chief and voting member Robert Kaplan, who has spoken a bit this week, continued to echo a view of patience overnight, commenting on the neutral rate. He said “if you ask me today, I would say it’s closer to 2 than 3“. Implying that policy still needs to remain accommodative until an uplift in inflation is seen.

In contrast, Kansas City Fed President Esther George, who is a non-voter, cited that conditions for another rate hike this year were suitable. In a TV interview George stated that if data continues to strengthen going into September we could see a rate rise later this year. With US Durable Goods Orders for July out today, we could see some more clarity around these statements.

Oliver Parsons

Client Relationship Officer