August 23, 2021

The Jackson Hole symposium is the key event of the week

 Recently, the US currency has continued to grow, although it did it very slowly when paired with the European currency, and quite quickly when paired with the pound. However, in general, the dollar continues to rise in price and, considering all the fundamental factors that are currently at our disposal, we come to the conclusion that the main driver of the dollar's growth is the optimistic expectations of the market regarding the reduction of the Fed rate in 2021. A couple of weeks ago, several representatives of the Fed's monetary committee openly stated that they support the idea of starting to wind down the QE program in September, that is, at the next Fed meeting. Thus, the markets immediately clung to this idea and are now waiting for the head of the Fed, Jerome Powell, to personally announce his readiness to remove incentives. However, Powell himself remains silent on this issue. In recent months, Powell has more often drawn attention to the fact that the American economy has not yet recovered enough to talk about the end of the stimulus program. According to Powell, the labor market is a priority target of the central bank, so we need to wait for its full recovery and only then talk about the end of QE. However, most experts still tend to believe that this fall, the Fed's plans to curtail QE will, at least, simply be announced. After all, no one believes that the Fed will simply take and cancel the monthly cash injections of $120 billion in one day. Thus, most likely, the QE program will be phased out gradually. For example, the first step may be to reduce it to $80-100 billion per month, which will still mean filling the economy with money, but at the same time in smaller volumes. For the dollar, even such a decision by the Fed will be a positive moment, but at this time the US currency is growing exclusively not in expectations. That is, when these expectations come true, the reaction may already be the opposite: the dollar may start a new round of decline. As for the stock market, it will continue to grow as long as the Fed, in principle, pours money into the economy. The mechanism is banal and simple: there is more money in the economy, respectively, they must settle somewhere. The stock and cryptocurrency markets are the perfect place for this. In part, bitcoin can also continue to grow now due to the fact that there is constantly more money in the US economy.

In light of all the above, we believe that Jerome Powell will still not be overly frank at the symposium in Jackson Hole, which will be held on August 26-28. Most likely, Powell will wait for the Fed meeting in September and, if any decision on QE is made, it will be announced at the meeting.