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Central bankers set for crisis talks as inflation spirals

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Central bankers including Fed boss Jerome Powell and Bank of England governor Andrew Bailey set for crisis talks as inflation spirals uncontrolled

The world’s strongest central bankers are jetting in for crisis talks as inflation spirals uncontrolled.

US Federal Reserve chief Jerome Powell and Bank of England Governor Andrew Bailey are amongst those as a result of attend the three-day event in Jackson Hole within the US.

Top of the agenda might be how far to boost rates of interest as they battle the soaring cost of living.

Bank of England governor Andrew Bailey

Crisis talks: US Federal Reserve chief Jerome Powell, left, and Bank of England governor Andrew Bailey, right, are set to attend three days of talks in Jackson Hole in Wyoming, USA

Officials in America, Britain and Europe are raising rates to attempt to douse the flames of spiralling prices. But markets are anxious about how hard and how briskly they may go as higher borrowing costs add to recessionary pressures the world over.

Ahead of the beginning of the meeting today, global markets were muted and the safe-haven dollar was again ascendant on signs of an additional hawkish tilt from the Fed. 

The euro has fallen beneath parity with the dollar, while the pound has swooned to simply above $1.18.

Meanwhile, the FTSE 100 fell under 7500 and Europe’s Stoxx index hit a four-week low before recovering. A keynote speech from Powell tomorrow could signal a dialling down within the pace of US rate hikes – and dampen hopes of rates being cut in 2023.

Comments this week by one other Fed official, Neel Kashkari, added to the caution, warning that much more aggressive hikes is likely to be needed. Also on Friday, America’s PCE index – the Fed’s preferred inflation measure – is released.

Last yr, Powell insisted inflation can be ‘transitory’. Spiking prices were largely attributed to the return of demand after lockdowns and provide chains buckling as they sought to readjust to reopening.

But war in Ukraine has driven up energy costs and threatened blackouts in Europe. The fear is that inflation will turn into embedded – driving demands for higher wages from employees.

Within the UK, where inflation hit 10.1 per cent last month, the Bank of England has tried to take control with a series of rate hikes.

The most recent, a 0.5 percentage point rise, was the sharpest since 1995 and one other looks likely in September, followed by more going into next yr.

The European Central Bank has been slower to act – before ordering a surprise half percentage point jump last month.

Within the US the Fed has lifted rates from near zero initially of 2022 to greater than 2pc. However the effect – to choke demand – threatens to strangle growth. 

So officials at Jackson Hole are eyeing what comes next. ‘They’re caught between a coming recession and sky-high inflation,’ said Holger Schmieding, chief economist at Berenberg. ‘Their first concern is to react to high inflation. Once recession is clearly there, the priority will shift.’

US growth reversed initially of this yr but looks more prone to enjoy a ‘soft landing’ than Europe. Germany, Europe’s biggest economy, is seeing Russian gas choked off and will face a troublesome winter, with data suggesting it’s in a downturn.

Britain is forecast to enter a recession this yr. ‘The hot button is energy, energy, energy. Electricity prices are ten times pre-Covid levels’ said Thomas Costerg, at Pictet Wealth Management. ‘All of us knew the Achilles’ heel of Europe is foreign energy and now they’re paying the worth.’

Richard Flynn, managing director at Charles Schwab UK, said he had seen signs of rates peaking, adding: ‘This yr’s symposium may provide an early indication of when the turn from hikes to cuts may occur.’

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