Average inflation targeting, Laura and US GDP

Fundamentally, yesterday was exceptionally busy. The main event was without a doubt the speech by the head of the Fed, Jerome Powell, at the annual symposium in Jackson Hole. Recall that the Fed faced an extremely unpleasant dilemma in case of an increase in inflation: keep on saving the economy and violate its basic function or to regulate inflation, but sacrificing the economy.

In the previous report, we noted that the way out of this situation is the inflation target in the form of “average inflation”. In fact, Powell announced the transition to this. That is, now the Fed will not immediately react when inflation exceeds the 2% target, but will monitor the average inflation rate, reacting in this way much later.

What does this mean? That ultra-soft monetary policy will last. This is a negative signal for the dollar. But the inability of sellers to push the Dollar Index against the background of this information leaves its buyers hopeful.

As for the stock markets, this news is extremely positive for them, especially against the backdrop of a possible alternative in the form of statements on tightening monetary policy.

Quite a lot of important macroeconomic statistics were released yesterday. First of all, we are talking about the revised value of the US GDP for the second quarter. No miracle happened. The GDP of the world's largest economy has indeed fallen by more than 30%. Initial jobless claims above 1 mln only exacerbated the effect.

Hurricane Laura, meanwhile, hit the US coast. The real scale of the destruction will most likely become clear after the weekend. But it has already been downgraded from a Category 4 hurricane to a tropical storm, so, as we warned, everything is heading towards the fact that the United States will mostly get off with fright.