All eyes on Jackson Hole symposium amid upside risks to US inflation

(Alliance News) - This week's focus will be on US interest rates, with all eyes on the Federal Reserve's Jackson Hole symposium.

Fed Chair Jerome Powell is expected to speak on Friday at the Jackson Hole meeting, which will take place in Wyoming. This year's topic of the meeting is "Structural Shifts in the Global Economy."

AJ Bell's Russ Mould described the event as the "main course" of the week.

"This meeting of finance ministers and central bankers will provide some insight into the thinking of the Bank of England, Federal Reserve and European Central Bank ahead of their next set of meetings this autumn," Mould explained.

Investors are bracing for some potentially hawkish rhetoric, in light of last week's minutes from the Fed's most recent meeting. The minutes had shown the central bank still sees "significant" upside risks to inflation.

Brown Brothers Harriman said it expects Powell's opening speech to "underscore the Fed's commitment to meeting the 2% inflation target."

"This being said, the fear of decidedly hawkish Fed is already priced in, and if there is no more hawkish surprise from this week's Jackson Hole meeting, tensions among investors could ease by next week, and give markets some breathing room," said Swissquote Bank senior analyst Ipek Ozkardeskaya.

The meeting comes at a time that US interest rates are at their highest in over two decades. At July's meeting, the US central bank lifted rates by a further 25 basis points to 5.25% to 5.50%.

In contrast, China's central bank cut a key interest rate in an attempt to counter the post-Covid growth slowdown in the world's second-largest economy. The one-year loan prime rate, which serves as a benchmark for corporate loans, was reduced to 3.45% from 3.55%, the People's Bank of China said in a statement, while the five-year LPR, which is used to price mortgages, was held at 4.2%.

Closely followed by the markets, the two rates are now at historic lows, after previous reductions in June. The decision is intended to encourage commercial banks to grant more loans and at more advantageous rates

"Investors were disappointed after the Chinese central bank decided against cuts to some of its key lending rates and lowered others by less than expected. Media reports over the weekend had pointed to a more concerted easing in monetary policy, with the People's Bank of China asking lenders to boost loan making," Lloyds Bank analysts said.

In China on Monday, the Shanghai Composite closed down 1.2%, while the Hang Seng index in Hong Kong closed down 1.8%.

By Sophie Rose, Alliance News reporter

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