Yellen and Draghi concerned about potential threats to economy - SocGen

At the Jackson Hole symposium Fed Chair Janet Yellen focused on the dangers attached to rolling back post-crisis financial regulation and ECB President Mario Draghi chose to warn about the threat to growth from the trend towards protectionism and away from free trade and globalisation, notes Kit Juckes, Chief Global FX Strategist at Societe Generale.

Key Quotes

“There may be all sorts of dragons and monsters up in those hills. The market reaction was, it seemed, to focus on what they didn’t talk about - monetary policy – and concluded there will be no near-term policy adjustments. But the subtext might as well be seen as being the on-going fragility of the post-crisis economy and the message is ‘don’t mess with this recovery or we’ll be right back where we started in a heartbeat’.”

“Of course, part of the message is to President Trump – winding back financial sector regulation, killing NAFTA, generally leaning against the tide of free trade; all of these could undermined the delicate balance of a recovery which has delivered growth in employment and GDP but not, yet, a recovery in productivity or in incomes on a sufficient scale. But the message could just as well be to ECB hawks (don’t push for normalisation too quickly) or even the UK (of all the decades to chose to vote for Brexit, this is just about the worst imaginable for the economy).”

“Whatever else though, we’re left with central bankers at the head of the two most important central banks in the world who see a surfeit of demons stalking the global economy and whether the ECB votes for further tapering of bond purchases this autumn, or the Fed presses ahead with balance sheet reduction, the pace of policy tightening will be funereal. All the more so as signs of inflationary pressures are as elusive as ever.”