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Currency Analyst since 2010

Jackson Hole and its message

At the end of the last week global central bankers led by Federal Reserve Chair Janet Yellen met in Jackson Hole. Even it’s clear that though monetary policies in the advanced economies are set to diverge, the policymakers underlined that they focus on the labor market conditions. All agreed that stronger hiring and wages are still needed to drive demand.

Country

US

Euro Area

UK

Japan

Canada

Unemployment Rate

6.2%

11.5%

6.4%

3.7%

7%

 

Federal Reserve

Yellen said while US hiring has improved and the debate at the Fed is shifting toward when “we should begin dialing back our extraordinary accommodation,” there is still a “significant” underuse of the workforce, and the labor market has yet to fully recover from the worst recession since the Great Depression. Yellen argued that the Fed must assess the health of the job market on more indicators than just the unemployment rate citing the Fed’s Labor Market Conditions Index, which includes 19 data points. The speeches of the other FOMC members showed that opinions of the FOMC members are divided: Bullard, George and Plosser spoke in favor of an earlier rate hike, while Lockhart and Williams don’t want to hurry.

Bank of England

Deputy Governor Ben Broadbent suggested rate increases there will be gradual as he said officials “have tried to communicate that the path of interest rates that’s likely to be necessary to meet our mandate is going to be materially different” than in the past. Broadbent used the conference to argue the financial crisis has changed the economic landscape and central banks must now consult labor-market data to better assess inflation.

European Central Bank

According to President Mario Draghi, the ECB is ready to further adjust its policy stance. Draghi at last admitted inflation expectations declined. Nevertheless, he expressed confidence his current package of policies would work and urged governments to step up with easier fiscal policies where possible.

Bank of Japan

Governor Kuroda said that he will keep policy easy until price stability is achieved and would shift tack if inflation softens. While Japanese labor market is “showing significant improvement,” there are still “important challenges to be addressed” in the form of weak wage growth and a reliance on part-time work. Japan may consider “utilization of foreign workers” to address potential labor force shortages in the future.

Bank of Canada

Governor Stephen Poloz said that his country’s labor market isn’t creating the full-time jobs and income that could be expected in a recovery, handing him scope to keep interest rates near historic lows.

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